GAP Insurance covers the difference between the Market Value (actual cash value) of a vehicle and the balance still owed on the financing (car loan, lease, etc.) When you purchase/lease a car, the depreciation in value happens quickly in the first years of a vehicle’s life, then slows-down. The loan/lease balance, however, drops in a more linear fashion. There are two ways of getting GAP coverage. The first type is an insurance policy or attachment to an existing auto policy. The second type is a waiver agreement sold by a finance company at time of purchase. The first is regulated by the insurance industry, the second is unregulated. Claims are subject to a total loss. The total loss is usually determined by the primary insurance company, typically when the cost to repair is greater than 75% of the vehicle’s actual cash value, depending on the state. (Total Loss Calculations explained.)
Adding the coverage to your existing auto policy usually is less expensive, typically $45-$50/year, depending on the vehicle.
Items NOT covered by GAP:
- Overdue loan / lease payments;
- Financial Penalties imposed under the lease due to high mileage, excessive use or abnormal wear and tear;
- Security deposits not refunded by the lessor;
- Carry over balances from previous loans or leases.
Question: “What if another party hits me and totals my car? Their insurance carrier is only offering ACV (actual cash value.)”
Answer: Your GAP coverage will respond to cover the difference between the other carrier and your loan/lease balance.
Posts on imwithcameron.com are written in plain language for informational purposes only. They are not policy forms or parts of an insurance policy. For exact language, see the insurance policy provided by your carrier.