GAP Coverage, Claim Payouts, and How to Avoid Financial Surprises
By Dan Burghardt, Owner – Dan Burghardt Insurance
For a quick quote, you can contact our quote department directly at (504) 441-RATE (7283) or complete the Online Quote Request form and you will be contacted ASAP.
Now let’s talk about something that can ruin your day faster than a pothole in Metairie at 50 mph: having your car totaled when you still owe money on it. It’s a situation no one wants to be in, but it happens more often than you might think—especially with today’s rising car prices, extended loan terms, and that new-car smell wearing off way before the payments do.
Here’s the scenario: the car is involved in a wreck or stolen and declared a total loss. The insurance adjuster gives a payout based on the actual cash value (ACV) of the car at the time of loss. Seems fair, right? Until you realize that the ACV is less than what’s still left on your loan.
Yep. You could be without a car and still writing checks for one you can’t even drive. It’s the financial version of paying rent on a place you’ve already moved out of. That’s where GAP insurance comes in—your financial airbag when things go sideways.
Let’s break it down in real terms.
How Insurance Companies Determine Payouts
When a vehicle is totaled, the insurance company doesn’t pay off what’s left on your loan. They pay what the vehicle is worth at the time of the accident. That means depreciation—the thing no one wants to think about—becomes a very big deal, very fast.
Cars lose value the moment they leave the lot. In fact, some vehicles can depreciate up to 20% in the first year. That’s a brutal haircut. So even if the car is just a couple years old, the payout could fall thousands short of the loan balance. And if you financed with little or no down payment? That gap gets even wider.
Let’s say the car’s actual cash value is $17,000, but the remaining loan is $21,000. Insurance pays the $17,000. That leaves $4,000 for the driver to cover—out of pocket—on a car that might now be sitting in a salvage yard somewhere in Houma with a raccoon living in the back seat.
What GAP Insurance Covers (and What It Doesn’t)
GAP stands for Guaranteed Asset Protection, and it does exactly what it sounds like: it covers the gap between what the car is worth and what’s still owed on it at the time of a total loss. It’s not automatic, though. It’s typically offered when financing or leasing, and can sometimes be added to an existing policy.
GAP doesn’t cover everything. It won’t pay for your deductible, missed payments, or add-ons like extended warranties or service contracts. It won’t cover the cost of a new vehicle either—but it does keep you from continuing to make payments on one that’s already been hauled off by a tow truck.
This is especially important for those who rolled negative equity from a previous loan into a new one (which, let’s be honest, happens more often than anyone likes to admit). If that’s the case, GAP insurance could save you from carrying over that old balance into yet another vehicle loan.
For a quick quote, you can contact our quote department directly at (504) 441-RATE (7283) or complete the Online Quote Request form and you will be contacted ASAP.
Who Needs GAP Insurance the Most?
GAP is highly recommended if:
- The down payment was less than 20%
- The loan term is longer than 60 months
- The car is leased
- The car model depreciates quickly
- Negative equity from a prior loan was rolled in
If any of these apply, GAP coverage could be the difference between a minor inconvenience and a major financial gut-punch.
What About Used Cars?
It’s a common myth that GAP is only for new cars. Not true. In Louisiana and Mississippi, drivers can and often do get GAP coverage on used vehicles—especially those financed through nontraditional lenders or at “buy here, pay here” dealerships. Used cars depreciate too, and if the loan balance is higher than the vehicle’s current value, the risk remains the same.
So don’t assume a used vehicle doesn’t need this protection just because it’s already seen a few Mardi Gras parades. That kind of thinking can leave someone footing a bill long after the beads are gone.
Staying Ahead of Surprises
The best way to avoid that ugly surprise of owing money after a total loss is to check the numbers regularly. Know what the car is worth, how much is still owed, and whether GAP coverage is in place. Review the insurance policy at least once a year—especially if the vehicle was financed or leased.
Drivers often assume full coverage means “everything is covered.” It doesn’t. Full coverage usually includes liability, comprehensive, and collision—but it does not include GAP unless it was specifically added.
And one last thing: if the loan is paid down to the point where it’s less than the car’s value, GAP can usually be dropped. No need to keep paying for coverage that’s no longer needed.
For a quick quote, you can contact our quote department directly at (504) 441-RATE (7283) or complete the Online Quote Request form and you will be contacted ASAP.
After over 40 years in the insurance business, the Dan Burghardt Insurance Agency has seen this scenario play out time and again across Louisiana and Mississippi—in cities like New Orleans, Metairie, Kenner, Gretna, St. Bernard, Slidell, Mandeville, Covington, Baton Rouge, Hammond, Houma, Thibodaux, LaPlace, Lake Charles, Bossier City, Central, Lafayette, Monroe, and Shreveport. And trust me: no one enjoys paying off a totaled vehicle. GAP insurance exists so drivers don’t have to.
Got questions? Need to double-check if GAP is included in an existing policy? We’re happy to walk through the options.
And just in case you missed it:
For a quick quote, you can contact our quote department directly at (504) 441-RATE (7283) or complete the Online Quote Request form and you will be contacted ASAP.
