Jessica Sautter is a Content Writer for CarInsuranceCompanies.com with a Bachelor’s Degree from Eastern Michigan University in Elementary Education with a Major in Reading and a Minor in Mathematics.

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Chris Harrigan has an economic degree from Limestone College and an MBA from Clemson University. He previously managed auto insurance claims for Enterprise Rent-A-Car. Currently, he is using his business and insurance expertise to provide insurance data analysis and visualizations to enhance the user experience.

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Reviewed by Chris Harrigan
Former Auto Insurance Claims Manager

UPDATED: Sep 19, 2020

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Key takeaways...

  • GAP insurance covers you where your standard policy does not.
  • Some car loan companies even offer a form of GAP insurance called a GAP Waiver
  • GAP insurance is not required by law

GAP insurance is an optional form of coverage anyone financing a late model car should have.

GAP insurance is not required by law as it is not a form of liability coverage but rather a form of insurance designed to help protect you from financial losses due to the value of your vehicle.

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Table of Contents

How does GAP car insurance work?

Under the standard terms of a comprehensive/collision car insurance policy, you will have coverage for damage to your vehicle however in the event of a total loss the amount of the claim will be subject to a vehicle’s book value.

GAP car insurance provides additional coverage for the difference of the GAP between your basic coverage and the amount you owe on a loan.

Let’s use this example:

You purchase a new car for $35,000, and six months later the vehicle is totaled.

Based on book value the car may be worth up to 30 percent less – somewhere around, however, your car loan is only 6 months old and you still have a balance of $32,500.

This is a serious dilemma as the car insurance company will write a check for $25,000 minus your deductible, yet you owe the car loan company $32,500.

This (GAP) difference of at least $7,500 you are still personally liable for!

If the vehicle owner had GAP Insurance then it would kick in and write a check for the GAP amount of $7,500. Without GAP insurance he just incurred a pretty large debt and has no vehicle to show for it.

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Is GAP insurance expensive?

No. GAP car insurance is very cheap and can be added for usually under $20 a month.

Some car loan companies even offer a form of GAP insurance called a GAP Waiver which can be included in your monthly payment – see our full GAP insurance section here.

Online car insurance quote comparison is the only way to find the best rates. Enter your zip code below to get FREE personalized auto insurance quotes today!

References:

  1. https://www.statefarm.com/insurance/auto/coverage-options/liability-coverage
  2. https://www.nationwide.com/difference-between-comprehensive-and-collision.jsp
  3. https://www.kbb.com/whats-my-car-worth/
  4. https://www.geico.com/claims/claimsprocess/total-loss-process/