Definition
Gap Insurance, sometimes styled GAP or Guaranteed Asset Protection, refers to an optional Texas auto coverage that pays the difference between the outstanding balance on a vehicle loan or lease and the vehicle's actual cash value at the time of a total loss. Gap is most important on newer financed vehicles, because new cars depreciate 15–25% in the first year while the loan balance declines more slowly — a gap that can easily reach several thousand dollars. Without gap coverage, a driver whose financed car is totaled may still owe the lender after the primary insurance payout, even after collision coverage applies. Gap is typically sold by the insurance carrier as a policy endorsement or directly by the auto dealer as a separate product. An insurer's gap endorsement is almost always the cheaper option. Gap coverage ends once the loan balance is below the vehicle's market value.
Also available in Spanish: Ver en español