California Law Adds New GAP Insurance Limits

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Automotive Content Editor

Meghan Carbary has been writing professionally for nearly 20 years. A published journalist in three states, Meghan honed her skills as a feature writer and sports editor. She has now expanded her skill-set into the automotive industry as a content writer for Auto Credit Express, where she contributes to several automotive and auto finance blogs.


, Automotive Content Editor - October 3, 2022
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California Assembly Bill 2311 cracks down on Guaranteed Asset Protection (GAP) insurance sales. Here's what we know about the bill that was signed into California Law on September 13.

New California Law Restricts GAP Sales

According to Automotive News, the new California law does a few things: it bans the sale of GAP on a car loan for less than 70% of the vehicle value, or that finance more than GAP would cover, and it also caps the price of GAP insurance at 4% of the financed amount.

The hope is that the new Bill will save Californians from spending money on unnecessary add-on products related to vehicle financing, an already expensive purchase. The cap placed on the price of GAP is especially poignant with the cost of cars and trucks continuing to rise.

However, a recent paper by two economists (with a University of Mississippi finance professor analyzing the results) found that the participants surveyed in a 2020 University of Michigan Study were very satisfied with the purchase of GAP. Ninety percent of those surveyed said they thought the purchase was a good idea.

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Why Get GAP Insurance?

GAP insurance is an add-on product that protects you from having to pay the difference between your loan value and the cost of your vehicle if something happens such as a total loss accident or theft. There's often a difference between the amount of your loan and the value of your vehicles, especially a new one since cars depreciate quickly at the start of ownership.

It is typically offered by dealership Finance and Insurance Managers, but you can typically purchase it independently through your own insurance company or a third-party provider. GAP is usually an affordable way to protect yourself from having to pay out of pocket.

Savings For Californians

Aside from the saving on the price of GAP, and the limitation of selling it when it would be as helpful to the consumer, lenders are also directed to present full refunds of the GAP insurance if certain situations such as loan payoff or repo occur. Other situations will be deemed eligible for a prorated refund.

All this points to savings on the overall purchase of add-on products at the point of sale for people in California. Whether you think GAP is in your best interest, is up to you, but now, if you're buying a car in California, your choice may be a little simpler, and a little less costly.

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, Automotive Content Editor

Meghan Carbary has been writing professionally for nearly 20 years. A published journalist in three states, Meghan honed her skills as a feature writer and sports editor. She has now expanded her skill-set into the automotive industry as a content writer for Auto Credit Express, where she contributes to several automotive and auto finance blogs.


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