Guaranteed Asset Protection (GAP) insurance is designed to cover the difference between a vehicle’s actual cash value (ACV) and the amount still owed on the loan or lease. This coverage becomes relevant when a vehicle is declared a total loss due to events like accidents or theft. However, GAP insurance typically does not extend to cover damage resulting from hail. Hail damage is generally addressed by comprehensive coverage, a separate component of an auto insurance policy.
The value of GAP insurance lies in its ability to protect vehicle owners from significant financial burdens. In instances where a vehicle is totaled shortly after purchase, the loan balance may exceed the vehicle’s depreciated value. Without GAP coverage, the owner would be responsible for paying this difference out of pocket. Comprehensive coverage, on the other hand, safeguards against losses from incidents not related to collisions, such as vandalism, fire, or natural disasters, including hail. Understanding the distinction between these two types of insurance is crucial for adequate financial protection.
