Branch Owner, TWFG Insurance Services, Fremont California and the Greater Bay Area Representing Dozens of Insurance Carriers
GAP coverage is generally purchased on a brand new vehicle either by the lender or the insurance carrier when you purchase your auto insurance. This coverage is designed to fill the GAP between what the car is valued at and the actual loan amount should there be a total loss. Auto insurance is paid on an ACV (actual cash value basis).
In the example of a new car, you may have purchased a vehicle worth $40,000 and took out a loan. Say for example one year later you total the vehicle and the value of the vehicle a the time of loss is $35,000. This amount is what the insurance company will pay. However due to interest rates and other varying factors your loan amount could be $38,000 at the time of loss leaving you with a $3,000 out of pocket expense. Or in other words a Gap. However, if you purchased the GAP coverage the Gap would be met by either the lender or insurance company, whoever you took the coverage out with. I always recommend GAP coverage on a newly purchased vehicle. This coverage generally stays on your policy for 2-3 years and then falls off depending on the insurance carrier. Talk to your local agent about GAP coverage on your newly purchased vehicle.
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In the example of a new car, you may have purchased a vehicle worth $40,000 and took out a loan. Say for example one year later you total the vehicle and the value of the vehicle a the time of loss is $35,000. This amount is what the insurance company will pay. However due to interest rates and other varying factors your loan amount could be $38,000 at the time of loss leaving you with a $3,000 out of pocket expense. Or in other words a Gap. However, if you purchased the GAP coverage the Gap would be met by either the lender or insurance company, whoever you took the coverage out with. I always recommend GAP coverage on a newly purchased vehicle. This coverage generally stays on your policy for 2-3 years and then falls off depending on the insurance carrier. Talk to your local agent about GAP coverage on your newly purchased vehicle.