GAP Insurance Explained: Protecting Against Total Loss & Negative Equity
Understand Guaranteed Asset Protection (GAP) insurance: how it covers the difference between actual cash value (ACV) and loan balance in total loss accidents.
By Sarah Jenkins, CFA
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Reviewed by David Vance, CFP
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5 min read
What is GAP Insurance?
GAP (Guaranteed Asset Protection) Insurance pays the financial gap between what your auto insurance company pays for a total loss vehicle (Actual Cash Value) and the remaining principal balance owed on your auto loan.
Who Needs GAP Insurance?
- Borrowers who put down less than 20% down payment (High LTV).
- Borrowers with long loan terms (60 to 84 months) where vehicle depreciation exceeds principal paydown.