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What is GAP Insurance?

March 14th, 2025

2 min read

By Daniel J. Middleton

What is GAP insurance

Your heart sinks when you learn your totaled car's insurance payout won't cover your full loan balance. This leaves you stuck paying both your remaining loan and a new car payment. Without GAP insurance, this scenario plays out for many Central New York drivers who finance vehicles.

At the Horan insurance agency, we work with multiple carriers, which helps us understand how insurance companies determine vehicle values after total losses. We can discuss how auto insurance works with GAP coverage, and we'll explain your coverage options.

In this article, we'll explore:

  • How GAP insurance works with your auto policy
  • Why insurance companies use market value, not loan balance
  • Where to obtain GAP coverage
  • Key considerations before declining GAP insurance

How Vehicle Loans Create Coverage Shortfalls After Total Losses

Insurance carriers base their settlement decisions on your vehicle's current market value, not your loan balance. When you finance a $20,000 vehicle, its value drops the moment you drive off the lot.

A year later, you still owe $17,000 when an accident results in a total loss. Your auto insurance determines the car's market value at $16,000. This leaves you paying the $1,000 difference to your lender while also needing to replace your vehicle.

Where to Find GAP Coverage for Your Auto Loan

Unlike standard auto insurance policies, GAP (Guaranteed Asset Protection) coverage comes from:

  • Your car dealership during purchase
  • The bank providing your auto loan

The cost of GAP coverage can vary depending on several factors, including the type of vehicle, loan amount, and coverage provider. While it is often affordable, it's important to get a clear understanding of the total cost of GAP coverage and factor it into your decision.

Once you decline GAP at purchase, you may not have another opportunity to add it later.

When to Consider GAP Insurance for Your Vehicle

GAP insurance may be worth considering in several situations:

  • New vehicle purchases: Cars often see their steepest decline in value during the first few years. If a total loss occurs shortly after purchase, the difference between the current market value (what insurance typically pays) and the loan balance can create an unexpected financial situation.
  • Cars with minimal down payments: A smaller down payment means financing more of the vehicle's purchase price. This can lead to owing more than the vehicle's market value, making GAP insurance a consideration.
  • Longer-term auto loans: Extended loan terms mean it takes more time to build equity in the vehicle. This increases the period where the loan balance might exceed the vehicle's market value.
  • Vehicle depreciation rates: Some models decline in value more rapidly than others. Understanding your vehicle's typical market value trends can help when evaluating GAP insurance options.

Auto Insurance Quote Sheet Graphic

Consider GAP Coverage Options

No one wants the shock of owing money on a car they can't drive anymore. GAP insurance can help address this risk, but you'll want to understand how it fits your situation.

As a Central New York insurance agency, we aim to help clients understand their auto coverage options, including how GAP insurance works with their policies. While we don't sell GAP coverage directly, we'll explain how it coordinates with your auto insurance.

Click the Get a Quote button below to discuss your auto insurance and learn how it works alongside GAP coverage.

Get a Quote

Daniel J. Middleton

Daniel is an accomplished content creator. He has been working in publishing for almost two decades. Horan Companies hired Daniel as its content manager in November 2022. The agency entrusted its messaging to him. Since then, Daniel has written insurance articles, service pages, PDF guides, and more. All in an effort to educate CNY readers. He's helping them understand the world of insurance so they can make informed decisions.