If your financed or leased vehicle is stolen or declared a total loss, your insurance payout may be less than the amount you still owe on your loan or lease. GAP insurance is designed to cover some or all of that difference, helping reduce your out-of-pocket costs.
For this guide, our team reviewed Ontario’s OPCF 43 waiver-of-depreciation form to check how depreciation is handled in an insured settlement, the Financial Consumer Agency of Canada’s car-insurance guidance to confirm basic policy concepts, and Quebec regulator AMF’s approved automobile-insurance forms to compare a separately regulated replacement product.
Read on to learn how GAP products work, what they may exclude, how they differ from OPCF 43 and how to decide whether the cost fits your shortfall risk.
What Is Gap Insurance?
GAP protection can pay or waive an eligible shortfall between a covered total-loss settlement and the remaining loan or lease balance, but only under the signed product’s limits and exclusions. It is most useful when you would still owe a significant amount on your loan or lease after your insurer pays the claim. It may add little value when the vehicle has equity or the lease already includes equivalent protection.
Your contract explains the purchase deadline, eligible vehicles and financing, required primary physical-damage coverage, covered total-loss trigger, maximum benefit and exclusions.
How Exactly Does Gap Insurance Work
The auto insurer settles the covered vehicle loss under the policy. The GAP provider may then pay or waive the remaining eligible balance, subject to the contract’s limits, deductibles and exclusions.
Here’s an example to show you how it works:
If the lender payoff is $15,000 and the covered vehicle settlement is $12,000, you could think that the apparent $3,000 difference is what gap insurance pays for you. However, that amount does not get covered right away. The final benefit depends on the contract’s limits, exclusions and any deductions that apply.
Read More: How Car Write-Offs Work
What is Not Included in Gap Insurance?
Gap insurance doesn’t cover everything on your car when a total loss happens. There are some notable exclusions, such as:
- Additional car modifications not installed by the factory
- Extended warranties
- Lease expenses
These exclusions vary by provider, so read the signed contract for treatment of deductibles, prior negative equity, overdue payments, financed add-ons, warranties, lease charges and modifications.
Is Gap Insurance Worth It in Canada?
GAP is worth examining only when a material eligible shortfall may remain, and the borrower can’t comfortably absorb it. It may add little value when the vehicle is worth as much as or more than the remaining loan balance.
Your regular collision or comprehensive coverage may pay for a total loss, while GAP addresses the remaining balance between the insurance settlement and your loan or lease.
- Relax if your car is a total write-off after an accident or theft
- Reduce your financial risk if your car loan is larger than your insurance coverage
Read More: Waiver of Depreciation Endorsement Explained
Things to Consider Before Buying Gap Insurance
Before buying, write down the lender payoff, supportable vehicle settlement, deductible, prior negative equity, financed add-ons, overdue amounts, contract cap, term, cancellation or refund rule, and total cost including financing interest. A lease may already contain shortfall-waiver terms.
Think enough if it’s worth getting, and consider these factors before talking to your insurer or dealership about gap insurance: