GAP Insurance

Guaranteed Asset Protection (GAP) insurance is a specialized form of coverage that protects borrowers from financial loss when their vehicle is totaled in an accident or stolen. Standard auto insurance only pays the car’s current market value, which may be lower than the outstanding loan balance due to depreciation.

GAP insurance covers this “gap,” ensuring the borrower does not have to pay out-of-pocket for a car they no longer possess. GAP coverage is especially important for buyers who make small or no down payments, take out long-term loans, or finance vehicles that depreciate quickly.

Lenders often require GAP insurance for high-risk loans, though it can also be purchased separately from insurers or added through dealerships. While it increases the overall cost of ownership, the financial protection it provides can be significant in the event of a loss.

Consumers should compare prices, as dealership GAP products may be more expensive than policies offered by insurers or banks. Ultimately, GAP insurance offers peace of mind by protecting against one of the biggest risks in auto financing - negative equity after a total loss.