What You Need To Know About Vehicle Loan GAP Insurance and Mechanical Breakdown Insurance

Mechanical breakdown and GAP insurance for your vehicle loan.
Vehicle loan GAP and mechanical breakdown insurance at DCCU.

If you are considering a new car, you are most likely looking at reviews, MPG comparisons and insurance quotes. You may also hear about GAP insurance and mechanical breakdown insurance. How do these products work and why do you need them?

Vehicle Loan GAP Insurance

Guaranteed Asset Protection or GAP insurance covers the difference between what your car is worth and what you still owe on your vehicle loan. (You would recognize this as depreciation once you drive away from the dealer.) Often, owing more than what the car is worth after purchase is simply the nature of buying a new vehicle. However a theft or accident can drastically change this situation.

Let’s say your five-month old car is stolen or damaged and replacement or repair costs add up to more than the car is worth. At this point, GAP insurance pays the difference between what the collision insurance covers and what you still owe on the vehicle loan. If you did not have gap insurance, you would have to pay that amount in addition to your regular insurance deductible.

However, if your loan balance is already less than the car’s value, you would not need GAP insurance. You are not considered “upside-down” on your vehicle loan if you put a down payment on the vehicle and/or pay more than your minimum payment to pay off your car sooner. In the event of theft or total loss, comprehensive and collision coverage would provide the coverage you need.

Auto Deductible Reimbursement

Another awesome feature of DCCU’s GAP insurance program is called Auto Deductible Reimbursement.

  • Pays up to $500 per loss when a claim is filed and paid with your primary insurance carrier.
  • Loss means an event for which the auto insurance company has approved & has paid a claim which exceeds your auto deductible for a collision or comprehensive claim.
  • Auto Deductible Reimbursement coverage is effective upon date of enrollment and will continue for one (1), two (2), or three (3) years, depending on plan enrollment.

This is bundled right into each of our GAP policies at no additional cost!

Mechanical Breakdown Insurance

Mechanical breakdown (MBI) insurance is intended to cover costly repairs after the factory warranty expires. MBI can be purchased at any time but you’ll get the most out of it when the car is fairly new. Beyond initial purchase, buyers can typically renew for a specific timeframe (five to seven years) or a maximum mileage limit.

Policies at DCCU cost between $200 – $400 per year, based on car age, mileage, history, etc. This is typically a significant savings over policies offered by dealers. There is no deductible. Similar to service contracts or extended warranties, MBI doesn’t cover normal wear and tear or routine maintenance. Coverage does not include replacing brakes, timing belts or shocks. Compared to the cost of extended warranties (often rolled in to the vehicle loan), MB coverage is easier to cancel.

Ultimately, a smart combination of GAP, MBI and setting aside emergency funds in a Dane County Credit Union savings account for major repairs is often the best solution. DCCU staff can help you determine which combination is best for you and your vehicle.


Published by

Hillary W.

Hillary is a 2008 graduate of UW-Madison. She is a proud Badger all the way, but her strong love of travelling led her to a graduate program out in Phoenix, AZ, which she absolutely adored. Now, back in Madison, Hillary is once again connected to her Wisconsin roots. In the winter, you can find her on the ski slopes whenever she has time. In summer, she's on the bike path or enjoying a good book along any stretch of lakefront. Also a passionate Mallards fan, look for her at Warner Park whenever a game is in town!