GAP Insurance, also known as Guaranteed Auto Protection or Guaranteed Asset Protection, covers the difference between the actual cash value of a vehicle or asset and the balance still owed under its financing contract. Claims are subject to a total loss of the asset. GAP insurance is intended to cover the remaining amount due on the loan, in the event that the total loss settlement amount will not pay off the loan in full. Some GAP policies also cover the policy deductible.
GAP insurance is best considered under extended financing plans where the asset value depreciates faster than the loan principal is paid down, such as for low down-payment loans, high interest rate loans, or loans with 60 month or longer terms.
Most auto insurance or finance companies offer GAP coverage to consumers at the time of purchase. GAP insurance is an optional purchase; however some finance companies require GAP as a condition to obtaining certain types of loans.
GAP insurance policies are different than waiver agreements offer by a lender that promise to forgive the remaining loan amount after a total loss. Waiver agreements are not regulated by the Division of Insurance.