Gap Insurance


Guaranteed Auto Protection insurance was established in the North American financial industry. GAP insurance is the difference between the actual cash value of a vehicle and the balance still owed on the financing. GAP coverage is mainly used on new and used small vehicles and heavy trucks. Some financing companies and lease contracts require it.

Gap Insurance

What is ‘Gap Insurance’

A type of auto insurance that car owners can buy to protect themselves against losses that can arise when the amount of compensation received from a total loss does not fully cover the amount the insured owes on the vehicle’s financing or lease agreement. This situation arises when the balance owed on a car loan is greater than the book value of the vehicle.

Explaining ‘Gap Insurance’

For example, according to the blue book, John’s car is worth $15,000. However, he still owes a total of $20,000 worth of car payments. In the event that John’s car is completely written off as a result of an accident or theft, John’s car insurance policy will reimburse him with $15,000. Because John owes the car financing company $20,000, however, he will still be $5,000 short, even though he no longer has a car.

If John had purchased gap insurance, the gap insurance policy would cover the $5,000 “gap”, or the difference between the money received from reimbursement and the amount still owed on the car.

Further Reading

  • Statistical and financial models of insurance pricing and the insurance firm – [PDF]
  • Empirical Study on Regional Gap of Insurance in China Based on Insurance Density Perspective [J] – [PDF]
  • Financial insurance product – [PDF]
  • The rise of private health insurance in Australia: early effects on insurance and hospital markets – [PDF]
  • Rural urban income gap and critical point of institutional change [J] – [PDF]
  • The× Effectiveness of Gap Insurance With Respect to Basis Risk in a Shareholder Value Maximization Setting – [PDF]
  • Research on Regional Difference in Insurance Market of China [J] – [PDF]
  • The Impact of Filling-up the Gap and Cutting Down the Amount of Personal Account of Pension Insurance on the Level of Retirement Pension [J] – [PDF]