GAP insurance - wikipedia GAP insurance This article needs additional citations for verification. Please help improve this article by adding citations to reliable sources. Unsourced material may be challenged and removed. ( June 2012 ) Financial market participants Credit unions Insurance companies Investment banks Investment funds Pension funds Prime brokers Trusts Finance Financial market Participants Corporate finance Personal finance Public finance Banks and banking Financial regulation Fund governance Guaranteed Auto Protection ( GAP ) insurance ( also known as GAPS ) was established in the North American financial industry. GAP insurance is the difference between the actual cash value of a vehicle and the balance still owed on the financing ( car loan, lease, etc. ). GAP coverage is mainly used on new and used small vehicles ( cars and trucks ) and heavy trucks. Some financing companies and lease contracts require it. GAP insurance covers the amount on a loan that is the difference between the amount owed and the amount covered by another insurance policy. Some GAP policies also cover the deductible. This coverage is marketed for low down payment loans, high interest rate loans and loans with 60 month or longer terms. GAP insurance is typically offered by a finance company at time of purchase. Most auto insurance companies offer this coverage to consumers. GAP insurance is usually paid upfront and, for that reason, one is eligible for a refund if he / she sells or refinances their vehicle. There are two ways of getting GAP coverage. The first type is an insurance policy sold by a broker. The second type is a waiver agreement sold by a Finance & Insurance Manager. The first is regulated by the insurance industry, the second is unregulated. In either case coverage is usually the same and sold as a soft product through the car dealership. Coverage is usually financed along with the lease / loan. Claims are subject to a total loss. The total loss is usually determined by the primary insurance company 's third - party appraiser. Exclusions to GAP insurance vary by country or state. Some exclusions include a maximum loss limit of $50,000 while others require a loan term of less than 84 months. GAP is an optional purchase ; however, many states in the US require that a car dealership offer GAP at the point of purchase. Other states require insurers to offer GAP if a client requests it. States such as Louisiana require that the purchaser sign a disclosure document as proof. Although GAP is optional, some finance companies require GAP as a condition to obtaining a loan. The Truth in Lending Act excludes GAP premiums from financial charges if GAP was not required by the creditor, the premiums were disclosed in writing, and the consumer provides a written request for the insurance. UK Gap Insurance Update In September 2015, the FCA changed the way that Gap Insurance premiums are sold by car dealers in the UK. Claims ratios for GAP insurance ( the amount paid out in comparison to premiums paid ) were just 10 % between 2008 and 2012, meaning that just £ 10.00 was paid out for every £ 100.00 paid in premiums. The poor value for money being given to consumers prompted the FCA to require the following : Ensure dealers make consumers aware that other suppliers exist. Delay the transaction by 4 business days. See also Insurance law Insurance in the United States GAP waiver References ^ Jump up to : `` Gap Insurance ''. Retrieved 19 June 2013. ^ Jump up to : Reed, Philli (. `` Gap Insurance : How It Impacts Your Car Loan or Lease ''. Retrieved 19 June 2013. Jump up ^ Sage, Bobbie. `` Gap Car Insurance Coverages ''. Retrieved 19 June 2013. Jump up ^ Caucutt, Joshua. `` What Is Gap Insurance Coverage for Cars -- Is It Worth It ? ''. Retrieved 19 June 2013. Jump up ^ `` RCW 48.22. 060 ''. Retrieved 19 June 2013. Jump up ^ `` Louisiana Motor Vehicle Commission GAP Disclosure Form '' ( PDF ). Retrieved 2012 - 03 - 28. Jump up ^ https://www.ala.co.uk/blog/final-rules-from-fca-for-add-on-gap-insurance/ Insurance Types of insurance Health Accidental death and dismemberment Dental Disability ( Total permanent disability ) Income protection Long - term care National health Payment protection Life Mortgage life Term life Universal life Variable universal life Whole life Business Bond Business owner Directors and officers liability Fidelity Professional liability Protection and indemnity Trade credit Umbrella Residential Contents Earthquake Flood Home Landlords ' Lenders mortgage Mortgage Property Renters ' Title Transport / Communication Aviation Computer Public auto Marine Satellite Shipping Travel Vehicle Other Reinsurance Casualty Crime Crop Divorce Extended warranty Group Liability No - fault Pet Terrorism Wage War risk Weather Workers ' compensation Takaful Insurance policy and law Insurance policy Insurance law Health Insurance Portability and Accountability Act Insurance fraud Other History of insurance Unitised insurance fund List of topics Retrieved from `` https://en.wikipedia.org/w/index.php?title=GAP_insurance&oldid=841903673 '' Categories : Auto insurance in the United States Types of insurance Hidden categories : Articles needing additional references from June 2012 All articles needing additional references All articles with unsourced statements Articles with unsourced statements from June 2013 Articles with unsourced statements from November 2012 Articles with unsourced statements from December 2015 Talk Contents About Wikipedia Add links This page was last edited on 18 May 2018, at 20 : 49 ( UTC ). 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Question: what does gap mean when buying a car
Answer: the difference between the actual cash value of a vehicle and the balance still owed on the financing