Credit Union Protection Plans

Q: What exactly is a credit union protection plan like GAP, mechanical breakdown, and debt protection?

A: Purchasing a credit union protection plan can be a great way to ensure your loans and income are covered in any eventuality, but navigating the choices can be confusing.

Here’s what you need to know about the protection plans available at Focus Federal Credit Union.

What is GAP protection? 

GAP (guaranteed asset protection) protection is an auto protection add-on that pays the difference between the depreciated value of your car and what you still owe on the car in the event that your car is stolen or totaled. GAP protection is only available for the current borrower on an auto loan, or current leaseholder, on the new vehicle. Coverage can also be available for eligible motorcycles, boats, RVs, and campers.

GAP coverage is often recommended for drivers purchasing an expensive, new vehicle, considering that most new vehicles depreciate by 19% in their first year of ownership. This causes many drivers to be underwater on their auto loans toward the beginning of the loan’s term.

How much does GAP protection cost? 

While prices will vary among providers, GAP protection generally costs between $400 and $700 when purchased from a dealership, and between $20-$40 a year when added to an existing auto insurance policy.

GAP protection purchased through Focus Federal Credit Union will cost you just $495.

Is GAP protection for everyone?

GAP protection is a great idea for all borrowers but especially recommended for drivers who are, or maybe, upside down on their auto loans. Drivers who have made a down payment of less than 20% on the auto loan, and/or who have a loan term that is 60 months or longer, will usually fall into this category.

GAP protection is also a good idea for drivers leasing a new vehicle. Some leases will automatically include GAP coverage in their contracts.

What is mechanical breakdown protection? 

Collision insurance covers damage to your vehicle caused by accidents. Comprehensive coverage will pay for damage caused through other means, such as a windshield shattered by a rock. But who pays for damage caused by a mechanical breakdown? Let’s face it, cars are mechanical and it’s not a matter of “if”, it’s a matter of “when” will they break down.

This is where mechanical breakdown protection comes in. MBP will cover almost any kind of breakdown in your vehicle so you don’t have to pay for these repairs on your own. Similar to purchasing an extended warranty on a vehicle, coverage can include a faulty transmission, a broken carburetor, or a brake repair. Mechanical breakdown protection will not cover regular maintenance and upkeep of the car, such as replacing spark plugs, refilling fluids, and changing the tires.

How much does mechanical breakdown protection cost?

Mechanical breakdown protection varies depending on the age or mileage of the vehicle.

Is mechanical breakdown protection for everyone? 

Mechanical Breakdown Protection is recommended for drivers financing a new vehicle, as the repairs on these vehicles can be quite costly. If you plan on keeping your vehicle longer than the manufacturer’s warranty, you probably want to consider MBP. The manufacturer’s warranty is typically for a limited time period and mileage such as 3 years/36,000 miles. Most drivers will exceed the mileage component of the manufacturer’s warranty within a couple of years.

If you are buying a used vehicle, you most likely won’t know the previous owner’s maintenance habits, so purchasing an MBP will provide peace of mind in case something does break down.

The bottom line is that vehicle repairs are inevitable and can be quite costly. Unless you have substantial savings or are disciplined enough to budget for these repairs monthly, you probably want to consider mechanical breakdown protection.

What is debt protection?

Debt protection is coverage that provides benefits in the event that something unexpected happens to you as a borrower.   It can cancel the balance of a loan in the event of death, or make monthly payments on the loan if you become disabled and unable to work, or even provide benefits if you become unemployed during the term of your loan.

Debt protection is often sold by financial institutions and private lenders along with home and auto loans. It may also be offered by creditors to consumers opening a new line of credit.

Is debt protection for everyone?

Debt protection should be considered as part of your overall financial plan.  How much life insurance coverage you have?  Does your employer offer a disability plan at work? If so, how much does it pay and how long do you have to be off before you qualify?  Besides you, who else relies on your income?  If you had an interruption in income, how long could you continue covering your debts and living expenses?

Everyone’s financial situation is different, but having a plan in place to help you overcome unexpected situations will help set you up for financial success.  Life changes constantly, so it is a good idea to review your financial plan periodically.  What you had planned for a couple of years ago will most likely change.

Debt protection is another financial tool to help you cover unexpected life events and give you peace of mind knowing you and your family are covered.