guaranteed auto protection (GAP)
Insurance covering the difference between the actual cash value (ACV) of a damaged
or stolen vehicle and the amount owed on the car under a loan or lease. This
difference arises due to the rapid depreciation of most automobiles in their
early years and can prove problematic if the car is totaled in an accident or
if it is stolen and not recovered. GAP coverage is often sold through credit
unions and automobile finance companies and frequently written on leased vehicles.
For example, if a leased car with an ACV of $20,000 is stolen, the physical
damage section of the auto policy would pay $20,000 minus any applicable deductible.
However, if the lease still had $25,000 outstanding, the insured would be liable
for the extra $5,000. GAP insurance would pay the extra $5,000 to the leasing
company. In recent years, GAP insurance has become available by endorsement
under either a commercial or a personal auto policy.
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