Gap Insurance
What Is GAP Insurance?
GAP insurance, or Guaranteed Asset Protection insurance, covers the difference between a vehicle’s loan balance and its actual cash value if the vehicle is totaled or stolen.
Vehicles depreciate quickly, often losing value faster than loan balances decline.
Why It Matters
GAP insurance:
- Protects against negative equity after loss
- Prevents out-of-pocket payoff obligations
- Is commonly required for low-down-payment loans
Without GAP coverage, borrowers may owe money even after insurance pays market value.
How GAP Insurance Works
GAP insurance pays the difference between the outstanding loan balance and the insurance payout if the vehicle is declared a total loss.
Example: If a car’s market value is $18,000 but the loan balance is $22,000, GAP insurance may cover the $4,000 difference.
Coverage typically ends once loan balance falls below vehicle value.
GAP Insurance vs. Auto Insurance
GAP Insurance → Covers loan balance gap
Auto Insurance → Covers vehicle market value
They serve different protection purposes.
FAQs About GAP Insurance
Is GAP insurance mandatory?
Some lenders require it for high loan-to-value financing.
Does GAP insurance cover repairs?
It only applies to total loss situations.
Can it be canceled?
Some policies allow cancellation once equity is positive.
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