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Quick citation guide Select a citation to automatically copy to clipboard.APA: Todoroff, N. (2024, July 29). Gap insurance. Bankrate. Retrieved September 09, 2024, from https://www.bankrate.com/insurance/car/gap-insurance/
Copied to clipboard!MLA: Todoroff, Natalie. "Gap insurance." Bankrate. 29 July 2024, https://www.bankrate.com/insurance/car/gap-insurance/.
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Written by
Natalie Todoroff
Natalie Todoroff is an insurance writer and industry analyst for Bankrate. She is based in San Francisco and holds a personal lines insurance license.
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Lisa McArdle
Lisa McArdle is an insurance editor who joined the Bankrate team in 2023. She has more than 15 years of experience writing, editing and managing content in a variety of industries, including insurance, auto news and pop culture.
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Mark Friedlander
Mark Friedlander is director of corporate communications at III, a nonprofit organization focused on providing consumers with a better understanding of insurance.
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Guaranteed Asset Protection (GAP), commonly known as gap insurance, is an optional add-on to your car insurance policy that can provide crucial financial protection. For drivers with a loan or lease on a new vehicle, gap insurance can be a lifesaver by covering the difference between the amount you owe on your car and its depreciated value if your car is totaled or stolen. This coverage helps ensure you won’t be left paying off a loan or lease for a vehicle you no longer have, offering peace of mind and financial security in unforeseen circumstances.
Gap insurance is optional car insurance endorsement that covers the “gap” between the amount owed on a vehicle and its actual cash value (ACV) in the event it is totaled, stolen or rendered a total loss from a covered claim. Although gap insurance is an option in most cases, if you have a loan or lease contract on your vehicle, your financial lender may require you to carry it.
Here’s how gap insurance works: say you have been involved in an accident and your vehicle has been damaged beyond repair and must be replaced. You still owe $18,000 on your auto loan, but the vehicle is now worth only $15,000. Gap insurance would cover the $3,000 difference between what you owe on your car and its current market value, after accounting for deductibles. Some policies also cover the deductible, but this is not always the case.
Remember that gap insurance typically applies only to vehicles that are brand new, or models less than a year old, that have been totaled or stolen. It does not cover accidents, damages, repairs or a sale or trade-off, even if the financed amount is higher than the value of the vehicle. It will also not help buy you another vehicle — you would need new car replacement coverage to cover the expenses of purchasing a new vehicle.
Gap insurance is generally available to drivers who have financed or leased a new or nearly new vehicle. If you owe more on your auto loan or lease than the car’s current market value, you may benefit from gap insurance. Typically, financial lenders or leasing companies will require you to have gap insurance if your loan-to-value ratio is high. This ensures that if your car is totaled or stolen, you won’t be left with an outstanding loan or lease balance that exceeds the car’s market value. However, it’s important to check with your insurance provider and lender for specific eligibility requirements and terms.
