Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

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Written by Jeffrey Johnson
Insurance Lawyer Jeffrey Johnson

Laura Walker graduated college with a BS in Criminal Justice with a minor in Political Science. She married her husband and began working in the family insurance business in 2005. She became a licensed agent and wrote P&C business focusing on personal lines insurance. Laura serviced existing business and wrote new business. She now uses her insurance background to help educate drivers about...

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Reviewed by Laura Walker
Licensed Agent for 10 Years Laura Walker

UPDATED: Apr 25, 2022

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GAP insurance is probably the best self-explained acronym in the auto insurance industry especially compared to some like PIP, MPM, UIM, and others.

The letters GAP stand for “guaranteed auto protection” and refers to the replacement cost of your vehicle.

How guaranteed auto protection insurance works is that this type of coverage kicks in when a policyholder files a claim for total loss. Car insurance companies generally insure a vehicle’s replacement value based on book value, and for late model cars, this can pose a serious problem for a policyholder.

Most cars lose typically 20–30 percent in value as soon as they leave the lot, and you need time to go by for your car loan payments to amortize and have your loan balance catch up with the value of the car. Think about it this way:

  • You purchase a new car for $30,000 and finance the vehicle
  • The book value of the car the same afternoon as you take ownership is now around $24,000
  • The principal balance of your auto loan is still $30,000 (assuming no money down)

Until you make enough payments to bring the car loan balance in line with the replacement value any attempt to sell the vehicle will leave you upside down.

As far as car insurance companies go however they are not in business to necessarily make you whole but to provide a replacement vehicle of equal value. Just because your car is valued less than what you owe is not really their concern.

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So where does GAP insurance come in?

When you purchase GAP car insurance this type of coverage will kick in once a total loss claim is filed and fills the “GAP” between your vehicles book value and the car loan balance.

Let’s use the same example above and say that on the same day you buy the car you also happen to get in a car accident on the way home and write off the vehicle.

Your standard comprehensive or collision car insurance policy would pay the $24,000 (book value) and GAP insurance would pay the other $6,000. Without guaranteed auto protection insurance, however, you would get home to realize you are now $6,000 in debt and no car to show for it.

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Is GAP insurance standard with any car insurance policy?

No. GAP insurance is totally optional coverage, and the responsibility is on you to obtain coverage. Although most insurance agents will certainly try to sell you this type of insurance on a new car, the responsibility is solely on your shoulders to make sure you are covered.

Sometimes the car loan company will offer you a form of GAP insurance in your auto loan documents, but it’s a good auto to compare the cost of GAP auto insurance from your current provider before accepting the car loan company’s offer.

Do I need GAP insurance for a leased car?

Car insurance for leased vehicles works rather differently than purchasing or financing a car. Technically the car manufacturer still owns the vehicle, so they require much more coverage than minimum state requirements.

Florida car insurance requirements, for example, are $10,000 in personal injury protection and property damage, but if you leave a vehicle, you will need over $100,000 in coverage, comprehensive, collision, and GAP insurance.

No auto leasing company wants to be liable for an accident so they make sure you purchase coverage that is more than sufficient to cover most all accidents.

How much is GAP Insurance?

The cost of GAP insurance is very cheap with most drivers paying less than $20 a month for coverage, and it can be obtained through almost all car insurance companies.

The main purpose of auto insurance is to provide financial protection in the event of an accident, but as clearly exampled above, without the right type of insurance you can be exposed to great personal liability.

Always learn about auto insurance well ahead of buying a vehicle and spend time comparing quotes to find the most affordable coverage.

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