Six Things That Loan Gap (GAP) Insurance Does Not Cover

GAP coverage is arguably a very important coverage that can pay the difference between what you owe on your vehicle and what it the insurance company evaluates your vehicle at. Though it is often referred to as loan gap coverage, GAP is really an acronym that stands for Guaranteed Asset Protection. The purpose might be to provide coverage in your vehicle's newer years, when an owner typically owes more than the vehicle is valued at, but this is not a catch-all coverage. Here are six instances in which GAP coverage will not help you:


It will not cover intentional acts. Torch your car or roll it into the lake on purpose, then try to collect on any of your coverages, and you risk being prosecuted for insurance fraud.

The coverage will not extend to a rental car. If you are driving a rental vehicle because your own is in the shop, other coverages might apply to the rental such as collision or comprehensive (other than collision), but not GAP coverage.

It will not cover dealership or any other extended warranties that you purchase and roll into your automobile loan.

It will not apply if you lose your vehicle due to repossession regardless of the reason. (Repossession is not a covered loss.)

It does not exist to provide you with a down payment for a new vehicle in the event that your insured one is totaled.

It will not cover any balance on any loan that you rolled over into your new car loan. Say that you rolled an outstanding balance on your trade-in vehicle into the loan on your new vehicle. That is pretty typical, especially if you are "down-sizing" in this economy. This rolled-over portion of your loan would not be covered by GAP insurance.

Regardless, GAP coverage can be a valuable and inexpensive coverage to add to your automobile insurance policy. If you choose to purchase it from an insurer that you are unfamiliar with, it might be wise to check with A.M. Best or the Better Business Bureau to make sure that the company is stable enough to be counted on should you need to collect.


This article is written for informational purposes and is not intended to take the place of competent local legal counsel.

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