Rachael Brennan has been working in the insurance industry since 2006 when she began working as a licensed insurance representative for 21st Century Insurance, during which time she earned her Property and Casualty license in all 50 states. After several years she expanded her insurance expertise, earning her license in Health and AD&D insurance as well. She has worked for small health in...

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Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

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Reviewed by Jeffrey Johnson
Insurance Lawyer Jeffrey Johnson

UPDATED: Apr 14, 2022

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Here's what you need to know...

  • GAP stands for Guaranteed Auto Protection
  • This insurance cancels out the balance owed on a note after an insurance company pays the settlement amount
  • It is available through some finance and insurance companies

When buying a car, there’s more to consider than the make, model, and financing options. You’ll also want to look closely at the purchase and see if you might benefit from GAP insurance.

This coverage only kicks in if your car is declared a total loss following an accident or other qualifying event and protects your peace of mind.

Here’s what you should know about the process of totaling a car and how the GAP can help you avoid financial hardships down the road.

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All About the Cash Value

When you’re involved in an accident, the insurance company has to determine if it’s cost-effective to repair your car.

If the repairs cost more than the cash value of your vehicle, they will declare it a total loss. Insurers typically use one of two methods to determine the current cash value of a vehicle, including:

  • Looking at the value of comparable cars in your area
  • Using independent auto-value guides, such as Kelley Blue Book and NADA

If you agree with the appraised value, your insurance company will write a check for the stated value of the car and the vehicle will be towed away. You do have the option of buying the car back from the insurance company.

In this case, you will receive the total settlement price minus the salvage value as determined by your insurance company, and you will retain possession of the vehicle.

If there is a lienholder on the car, then the final payment may be sent directly to the financial institution that currently holds the note.

When shopping around for insurance, you can read the reviews to see how companies handled large claims and if current customers felt that they were fairly treated when cars had to be totaled.

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Disputing the Cash Amount

It’s also possible to challenge the insurance offer if it’s low. Also, you can ask for a breakdown of the details used to determine the vehicle’s value.

Usually, the details that influence the value of a car are:

  • Extra features like heated seats and upgraded trim levels
  • Custom additions such as rims, wheels, and audio systems
  • Major repairs and other upgrades that might have boosted the value, such as a recent purchase of new tires or a replaced engine

If the insurance company did not have the correct information, then you can ask them to re-evaluate your car using the corrected details.

You may also be able to hire your own appraiser for a second opinion. Before you go this route, remember that you’ll have to pay the appraiser and possibly a portion of the arbitration costs.

Where the Payment Goes


Once the settlement amount is finalized, a check will be cut. Where it goes depends on whether the car is owned outright, financed or leased. You will receive the payment if you own the car outright.

If it’s leased, then the check will go the leasing company, and the financing company will receive the settlement if you have a traditional loan.

At no time will the insurance company look at the balance on your loan.

If the determined cash value of the car is less than what you still owe, then you will be left with a balance on a car that’s either no longer in your possession or can no longer be driven.

You will be expected to repay this difference out of pocket. If you don’t have the funds available to you, then you can speak with your lender about payment arrangements. You can protect yourself from this situation by investing in GAP insurance ahead of time.

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Guaranteed Auto Protection

GAP is an anagram for Guaranteed Auto Protection. It’s typically required for leased cars, and it’s a smart idea with all types of loans.

As no-down-payment traditional loans become more common, the need for GAP insurance rises. It’s commonly sold at the same time as the car, and it can cost anywhere from $185 to $800 after insurance fees are taken into account.

However, if you’re going to put a substantial amount down, then this coverage may not be necessary for you.

Gap insurance protects the difference between insurance payout on a totaled automobile and the balance on the note, which can be defined as a debt cancellation agreement since the insured will not receive a check.

This coverage is particularly important for cars with high depreciation rates.

Cars lose value the moment you drive it off the lot, but this type of protection will help ensure that you don’t wind up making payments on a car that’s been written off by the insurance company and towed away.

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Very Specific Coverage


Gap insurance has a very limited scope. Designed to cover the balance on a car loan if the vehicle should be totaled, this is all that it covers. It’s not a general protection plan that will cover you anytime you cannot make the payment.

Knowing the scope and limitation of GAP insurance is important. It will not cover:

  • Car payments due to job loss or other financial hardships
  • Repairs to a vehicle that is not totaled
  • The balance of a loan or value of your car if it repossessed
  • Rental cars
  • The diminished value of your vehicle after it’s been in an accident
  • The down payment for your next car

If your car is declared a total loss, you may still wind up owing on the old vehicle even with gap insurance. The coverage does not extend to carry-over balances on loans that were rolled into the new car and extended warranties.

Ideal Situations for GAP Insurance

Not every loan will require this type of coverage. Before signing the papers for GAP insurance, take a moment to consider the kind of financing you’ve chosen. You may want to invest in this protection if you:

  • Put less than 20 percent down on the car
  • Are financing the vehicle for 60 months or longer
  • Choose a lease
  • Are rolling negative equity from an old car into a new loan
  • Will purchase a car that quickly depreciates

Keep in mind that some insurance companies also offer this coverage. Before signing up for the coverage, speak with your insurance agent to see if your provider can help you save money on this valuable protection. You can also shop around specifically for insurers who offer this protection.

When you’re considering your next car loan and payment, be sure to look closely at your financing and see if GAP insurance may be called for.

While you hope that you’ll never use it, this coverage can save you financially if you total a car that’s worth less than you owe.

This insurance carries a low initial cost, and you may be able to save even more by purchasing it through your auto insurer.

When shopping around for rates, be sure to ask if they offer this coverage for financed cars so that you can save money and enjoy the peace of mind.

Make sure your rates are competitive when purchasing gap coverage. Enter your zip code into our FREE comparison tool to get started!