GAP Insurance Explained

GAP insurance (Guaranteed Asset Protection) is a type of insurance that covers the difference between the amount a borrower owes on a vehicle loan and the actual cash value (ACV) of the vehicle in the event of a total loss, such as a theft or accident.

When a vehicle is financed, the borrower typically owes more on the loan than the ACV of the vehicle. If the vehicle is totaled or stolen, the insurance company will only pay the ACV, which may not be enough to cover the remaining loan balance. GAP insurance helps to bridge this gap by covering the difference between the ACV and the loan balance.

GAP insurance is usually offered by car dealerships and some insurance companies, and it can be purchased at the time of vehicle purchase or added to an existing insurance policy. The cost of GAP insurance varies depending on the type of vehicle, the length of the loan, and the amount of coverage needed.

GAP insurance is particularly useful for those who have financed a new car or have a long-term loan with a high loan balance. It can provide financial protection in the event of a total loss and help borrowers avoid owing money on a vehicle that they no longer have.