3 Things You Need To Know About Gap Car Insurance Coverage

Updated: Sep 27, 2021

Gap car insurance coverage protects car owners from paying residual loan amount, in case their car gets totaled in an accident or is stolen.


Gap insurance, as the name suggests covers you for the gap that appears between the Actual Cash Value (ACV) of your car and the loan amount still due on it. GAP insurance is very crucial if your vehicle is declared ‘totaled’ after a terrible accident. It also kicks in if the car is stolen and is not recovered. Through this article, we will share with you everything that you need to know about GAP Car Insurance coverage.

What is Gap Insurance?


Gap insurance is an add-on insurance cover for your vehicle. It is not compulsory but can be very helpful in case the car gets totaled. The actual value of cars depreciates very quickly. Different factors that affect the market price of your car are age, mileage, physical condition, etc. The actual market price of your car may get to half of its original cost within a couple of years.


If you buy or lease a car on a long-term loan, the depreciated value of your car may get lower than the loan amount still due on it. This situation is termed as negative equity or being upside-down. If the car gets totaled at this point, the insurance company is liable to pay only for the fair market value of your car before the collision. This means that out of the total loan amount, Only the Actual cash Value of your car will be paid through insurance money. You will be required to pay the residual loan amount from your own pocket.


At times, the lender may compulsorily require GAP insurance coverage to finance your car. When you lease vehicles, GAP insurance is mostly included in the Lease cost already. However, you should check the paperwork and make sure it’s incorporated.

How is gap insurance related to your car salvage value?