Gap insurance is a type of car insurance that covers the “gap” between a car’s actual cash value and what the driver still owes on the loan or lease if the car is totaled in an accident or stolen. Gap insurance prevents the policyholder from being stuck paying for a vehicle they can no longer drive.
Without gap insurance, collision and comprehensive insurance can cover the vehicle’s cash value, but if you still owe more than the car is worth, you’ll need to pay the rest of the loan or lease on your own. Because of this, gap insurance is often required by lenders and lessors.
When You Need Gap Insurance
You probably need gap insurance if you lease your car or have a car loan. You are especially likely to need gap insurance if:
- You have a car that depreciates in value quickly, like a sports car or an electric vehicle.
- You made a low down payment on a large loan.
- You have a newer car with high mileage, which rapidly decreases a car’s value.
- You have a long-term loan.
Gap insurance can usually be purchased directly from a dealership, lender, or lessor, but many traditional car insurance companies also offer gap insurance at a significantly lower rate.
Other Names for Gap Insurance
Sometimes, gap insurance is referred to as guaranteed asset protection or loan/lease payoff coverage.
Guaranteed asset protection is what the acronym GAP stands for, so guaranteed asset protection and gap insurance are the exact same thing.
Loan/lease payoff coverage is different than gap insurance. Loan/lease payoff generally has less strict eligibility requirements, but also provides less coverage than gap insurance. Most loan/lease payoff policies will only cover a maximum of 25% of the car’s value if it is totaled while there is still money owed on the lease or loan.
To learn more, check out WalletHub’s guide to gap insurance.
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