The auto insurance that covers the difference between a car’s value and its loan balance after a total loss is gap insurance.
“Gap” stands for Guaranteed Asset Protection. If a vehicle is totaled or stolen, standard collision or comprehensive coverage generally pays the vehicle’s actual cash value, not necessarily the amount still owed to the lender. Because cars depreciate quickly and loans may have small down payments or long terms, the owner can owe more than the vehicle is worth.
Gap insurance is designed to cover that negative-equity difference, subject to the policy’s limits, exclusions, and claim rules. Some policies may also cover part or all of the primary policy’s deductible. It is often offered by auto insurers, lenders, leasing companies, and dealerships.
Gap coverage is not the same as collision coverage: collision pays for covered damage to the vehicle, while gap coverage addresses the remaining finance balance after the primary insurer declares a total loss. It also may not cover unpaid installments, late fees, or certain refinanced amounts.