What is the definition of GAP in insurance terms?

The definition of GAP in insurance terms refers to Guaranteed Asset Protection. GAP insurance is designed to cover the difference between the amount owed on a vehicle and its actual cash value in the event of a total loss. This type of coverage is particularly beneficial for those who have taken out a loan to purchase a car, as new vehicles typically depreciate quickly. When a car is totaled, standard auto insurance only pays the actual cash value of the vehicle, which might be less than what is owed on the loan. GAP insurance steps in to cover the "gap" between these two amounts, ensuring that the borrower does not face financial hardship due to a loss.

Other choices might seem plausible at first glance, but they do not accurately represent what GAP insurance covers. Understanding the correct terminology and its implications can greatly aid in making informed insurance decisions.