What is GAP coverage?

by Hastings Mutual Insurance Company

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Here’s our summary of it:

The Insurance company will pay the difference between your vehicle’s actual cash value and any balance you still owe on your car loan or lease if your covered car is a loss.

It’s formally called “auto loan/lease coverage” but it’s better known under the name “GAP coverage.” And yes, it does cover the space between the actual cash value (ACV) and balance of a loan or lease, but “GAP” actually stands for “guaranteed auto protection.”


It pays over and above the ACV of a vehicle to cover an outstanding loan that is more than the ACV. It’s a popular kind of coverage, because of the support it provides when you owe more than your vehicle is worth, and the vehicle is a total loss (as in, a wrecked and likely undrivable car, not just one that has had some damage).

An example


Here’s a look at how it works, using some very simple numbers:

Say the actual cash value of your vehicle is $20,000, and that’s the amount your policy would pay out.


The amount you owe on your car loan is $22,000 — so you’re $2,000 short. Now you have no car and still need to come up with $2,000.


GAP coverage will pay off that remainder, so you’re not paying a loan for a car you can no longer drive.


Note that some restrictions apply to the coverage, like the amount payable under the coverage. Talk with your agent about the specifics of the coverage and find out how it can help you.

Is GAP coverage worth having?


Definitely, If you owe more than the car is worth (probably the case for the first few years after you take out a car loan), you’ll want to be able to recover your costs so you can look to your next vehicle.