As you are likely aware under the terms of a loan or lease on an automobile, at the time of an accident in which your car is declared a total loss there is often a difference between the amount your insurer will pay as actual cash value (under comprehensive or collision coverage) and the amount which you owe to the entity that financed or leased the vehicle (such as a bank or auto dealer). This difference, which can be hundreds or even thousands of dollars, is called the “gap amount”. Gap coverage pays this amount in the event of a total loss.

According to the New York Department of Insurance, currently in NYS you can purchase a “waiver” of the gap amount directly from the lender or dealer, who in turn has purchased gap insurance to cover the vehicle. Alternatively, some insurers may offer a separate policy or an endorsement to your personal automobile policy to cover this gap amount.

In addition, some lenders and leasing companies’ financing contracts state that the amount of settlement by the physical damage insurer (based on actual cash value) will be accepted as full satisfaction of the contract in the case of total loss to the vehicle. In these cases, neither a gap waiver nor policy is necessary, as no “gap” exists.

In 1994 NYS enacted "the gap law" which amended both the Insurance Law and the Personal Property Law. This law also makes it possible for businesses to offer gap waivers that do not constitute the doing of an insurance business and to insure themselves for their exposure to losses once such waivers have been issued. The Insurance Law provisions authorize gap insurance and exempt the making of gap waivers from doing an insurance business, under certain circumstances.

A property/casualty insurer authorized to do business in New York may write gap insurance as a non-basic kind of insurance after obtaining a license to do so. Car insurance companies can offer gap insurance as an optional coverage but are not required to offer it.

An automobile dealer that is not licensed as an insurance agent or broker may not sell gap insurance but may offer a gap waiver, as it does not constitute the doing of insurance business under certain circumstances according to the NYS DOI.

A gap waiver is an agreement under which the creditor agrees to waive the lessee or debtor’s obligation for the difference between the "gap amount" and the actual cash value of the property. An automobile dealer must be licensed as an insurance agent or broker to sell gap insurance on behalf of an insurer, but an automobile dealer may offer a gap waiver, as it is not considered doing insurance business as long as three conditions are met. NY Insurance Law section 1101 (b) provides for the gap waiver exemption.

You can learn more about the NYS GAP law and more specific about who can and cannot offer either gap insurance or gap waivers by contacting the New York DOI. This insurance regulatory body for New York has articles specific to this topic on their website and their representatives should be able to answer any other questions you may have to the topic.