“Gap” stands for “guaranteed auto protection,” which is a term used in the insurance industry. When a loan taken out to buy a car is worth more than the car itself, this kind of insurance is only necessary for a short time.
If the car were to be totaled in an accident, the insurer would be responsible for paying back the difference with gap insurance. This is not covered by standard auto insurance.
For instance, if you didn’t put any money down when you financed or leased a car, the amount you borrowed may be greater than the car’s total cost for a few years. Standard car insurance will only pay you the current value of the vehicle if it is stolen or damaged in an accident, so you will lose money on paying back the original loan or lease. This “gap” between the car’s depreciated value and the loan balance is covered by gap insurance.
Whether you need car gap insurance depends on whether you buy or lease a car. However, is gap insurance valuable? If you think you owe more on a vehicle than your comprehensive auto insurance policy would cover in the event of a claim, this could be the case.
