Gap Insurance — Insurance Claims Definition
Auto
Coverage that pays the difference between ACV on a totaled vehicle and the remaining loan or lease balance.
Gap protects when you owe more than the car is worth early in a loan. It may be sold by dealers or added to auto policies. It does not cover missed payments or rolled-in negative equity beyond policy terms.
Examples
You owe $22,000; insurer totals the car at $17,000 ACV; gap pays $5,000 to the lender subject to exclusions.
Common Mistakes
Canceling gap after a few months when underwater on loan. Assuming gap covers a new car down payment.
