Gap insurance pays the difference between a vehicle's actual cash value and the amount still owed on the loan, lease, or installment contract after an unrecovered theft or a total loss. The California Department of Insurance describes the loan version as loan/gap coverage.
The CDI auto glossary defines actual cash value, unless the policy says otherwise, as fair market value, and defines loan gap coverage as the difference between that value and the lender's balance, available on new vehicles. The CDI auto guide also applies the payment to a loan or a lease, and says a standard policy does not pay off a balance above market value. The borrower stays responsible for the rest. A CDI notice on Assembly Bill 2782 defines GAP insurance as indemnifying the purchaser or lessee for that difference after an unrecovered theft or a total loss. A dealer's written waiver of the difference, inside the sale contract or the lease, is not GAP insurance and needs no insurance license.
After a total loss
Read gap insurance in California. Spanish: seguro gap. Index: glossary.
Sources, checked October 5, 2026: CDI automobile terms, CDI auto guide, CDI accident guide, and the CDI notice on AB 2782.