What is GAP insurance?

Standard comprehensive and collision auto insurance policies only cover the “Actual Cash Value” of your car.  The actual cash value of your vehicle may very well be less than what you owe on the car.  This can be for several reasons, the most typical reason being depreciation. 

When you drive a car off the lot, the value of the car depreciates, in other words, the value of your car decreases.  Therefore, the amount you borrowed to pay for the car is more than you could sell the car for after you drive it off the lot.  

In the event you are in an automobile accident, and your car is “totaled”, you could end up owing money on your car loan after your insurance company pays you the actual cash value of your vehicle.  So you don’t have a car, but you still have a balance due on your car loan.

This is where GAP insurance comes in.

A GAP insurance policy insures you for the difference between what you owe on your car and what the insurance company pays.