Gap insurance
Covers the difference between what your car is worth and what you owe on your loan.
Full definition
Guaranteed Asset Protection (GAP) insurance pays the difference between your vehicle's actual cash value (ACV) and the remaining balance on your auto loan if your car is totaled or stolen. New cars depreciate 20–25% in the first year, but loan payoff is slower — leaving a gap. Without GAP insurance, you'd still owe money on a car you no longer have.
Real-world example
You owe $28,000 on your car. It's totaled. The ACV is $22,000. Your regular insurance pays $22,000. You still owe $6,000. GAP insurance covers that $6,000.
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Covers the difference between what your car is worth and what you owe on your loan.
Related terms
- Actual cash value
Pays the depreciated value of property — what it's worth today, not what it costs to replace.
- Collision coverage
Pays to repair or replace your vehicle after an accident.