What does gap auto insurance cover?

Answer 1

Physical damage coverage on an auto policy says that the insurance company has the option of paying to repair, replace, or pay the actual cash value of the vehicle. In the case where the damage to a vehicle's cost to repair is more than the ACV of the vehicle the vehicle is totalled and the company will pay the ACV of the vehicle. Sometimes when you buy a new vehicle without much or any downpayment you quickly get "upside down" in the loan. As the value of the car depreciates, the loan balance doesn't fall nearly as fast. For the first couple of years you owe more than the value of the vehicle. The insurance company has nothing to do with auto loan. GAP insurance was created to cover the difference in the ACV of the vehicle and the loan payoff. You can buy GAP insurance from the finance company or bank that financed the vehicle or from your insurance company. Purchasing from the insurance is much less expensive and you can drop the coverage once the loan balance falls below the value of the vehicle.