What is GAP Insurance?

         Gap insurance, or Guaranteed Asset Protection insurance, helps cover the difference between what you owe on your car loan or lease and the vehicle’s actual cash value (ACV) if your car is totaled or stolen. Since vehicles depreciate quickly, your standard auto insurance may only pay for the car’s current market value, which could be less than what you still owe. Without gap insurance, you would have to pay the remaining balance out of pocket. This coverage is especially useful for those who finance a car with a low down payment, have a long-term loan, or lease a vehicle, as these situations often create a financial "gap" between the loan balance and the car’s value.

       For example, imagine you buy a new car for $30,000, but after a year, its value drops to $22,000 due to depreciation. If your car is totaled in an accident, your collision coverage would only pay the car’s actual cash value of $22,000, but if you still owe $27,000 on your loan, you would be responsible for the remaining $5,000 out of pocket. If you have gap insurance, it would cover that $5,000 difference, ensuring you are not left paying for a car you no longer own. While gap insurance does not cover repairs, regular depreciation, or missed loan payments, it provides crucial financial protection when financing or leasing a car.