What benefit does GAP provide if a vehicle is declared a total loss?

GAP, or Guaranteed Asset Protection, is designed to help borrowers who experience a total loss of their vehicle, typically due to theft or a serious accident. When a vehicle is declared a total loss, standard auto insurance usually covers the actual cash value of the vehicle at the time of the loss. However, this amount may not fully cover the outstanding balance of the loan used to purchase the vehicle, especially if the borrower made a small down payment or has been paying off the loan for only a short time.

The primary benefit of GAP insurance is that it covers the difference between the insurance payout and the remaining balance owed on the vehicle loan. This means that if the insurance settlement is lower than what the borrower still owes, GAP insurance pays the remaining balance directly to the lender. Therefore, it effectively cancels the debt the borrower has with the lender, allowing them to move on without further financial liability related to the total loss of the vehicle.

Other options do not accurately reflect the core benefits of GAP insurance. There is no assurance of a cash settlement to the borrower directly, no replacement vehicle provided at no additional cost, and GAP does not promise an insurance payout above the market value, as it only addresses the debt difference.