Does GAP Insurance Have a Deductible?
Understand the true cost of vehicle loss. Learn how your primary auto insurance deductible affects your GAP coverage and financial protection.
When considering automotive insurance, a common question arises regarding Guaranteed Asset Protection (GAP) insurance: does it have a deductible? GAP insurance itself does not carry a separate deductible. Instead, the deductible from your primary auto insurance policy plays a role in the overall claim process, influencing how GAP coverage applies if your vehicle is totaled or stolen.
What is GAP Insurance?
GAP insurance bridges the “gap” between the amount owed on a car loan or lease and the vehicle’s actual cash value (ACV) at the time of a total loss. Standard auto insurance pays based on a vehicle’s depreciated value, not its original price or loan balance. This often creates a financial shortfall, especially with rapid depreciation, small down payments, or lengthy financing. It is relevant when the loan amount exceeds the vehicle’s market value, known as being “upside down” or having “negative equity.” If your car is totaled or stolen, GAP insurance covers this difference after your primary insurer pays its share, protecting you from owing money on a vehicle you no longer possess.
The Primary Auto Insurance Deductible
The deductible that applies in a total loss scenario is from your primary comprehensive or collision auto insurance policy. When your primary insurer declares your vehicle a total loss, they determine its actual cash value. Your primary insurance payout will be this ACV minus your chosen deductible.
You must pay this primary deductible out-of-pocket before your primary insurance claim is settled and before GAP coverage activates. While some GAP policies, often from car dealerships, might cover a portion of this deductible, it is not standard for most GAP insurance purchased through an insurer.
How GAP Insurance Payouts Work
The payout process begins with your primary auto insurer. For example, if you owe $25,000 on a loan and the vehicle’s ACV is $20,000, a $500 primary deductible means your insurer pays $19,500 ($20,000 ACV – $500 deductible). This leaves a $5,500 loan balance ($25,000 owed – $19,500 paid). GAP insurance then covers this difference.
This shows the policyholder satisfies the primary deductible, and GAP insurance covers the remaining financial gap, not the deductible itself. The GAP claim process begins after your primary insurer determines the vehicle’s ACV and processes their payout.