GAP Insurance

Guaranteed Asset Protection (GAP) insurance was established in the North American financial industry. GAP insurance protects the borrower if the car is totaled by paying the remaining difference between the actual cash value of a vehicle and the balance still owed on the financing.

In leasing, GAP insurance protects the lessor and the lessee in case the car is stolen or totaled. Most leases come with GAP insurance at no additional charge, since most leases are designed so that a vehicle is worth the loan balance only at the very end of the lease. In other words, most leased vehicles always have negative equity.