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The Importance of GAP Insurance

E. Gregory Watson, Esq. Dec. 5, 2014

GAP refers to Guaranteed Auto Insurance Protection. It can come into play after an accident when a vehicle is determined a total loss by either your insurance company or the insurance company of the vehicle that caused the accident. A total loss is usually determined when the insurance company estimates that the costs to repair your vehicle will exceed 75% of its current value. In that case the insurance company will make a payment of the value of the car as opposed to paying for repairs. This can present an issue if vehicle is not yet paid off at the time of your accident because it's very likely the current value of your vehicle is less than the amount you owe on your car loan.

GAP is a specific insurance product that will pay the difference between the car insurance payout and the remaining amount you owe your finance company. To reiterate: contrary to popular belief, the insurance payout only covers the current value of your car –not the total costs of your loan. So as you can see GAP is extremely important; and it's not required by law so everyone should make sure they have it. If you're not certain you do a good place to check is with your finance company. Many times it's added on by the dealership' finance company at the time of purchase so it's a good place to start there. The Maryland State Insurance Administration lists companies offering gap coverage in the state: