UPDATED: May 25, 2021

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Written By: Daniel WalkerReviewed By: Melanie MussonUPDATED: May 25, 2021Fact Checked

In New Jersey, as in many other states, auto insurance is a mandatory requirement. But, while the law mandates that you have to have insurance to drive in the state, it does not specify what type of coverage that you carry. According to the Auto Insurance Cost Reduction Act enacted in the Garden State, the basic policy must be made available to all drivers regardless of their driving or credit history. But, for many drivers, that basic policy may not provide enough coverage or protection for their situation, so they choose to add a GAP insurance policy to provide more security.

What Is a GAP Insurance Policy?

New Jersey auto gap insurance

Not all insurance policies are created equally. In New Jersey, there are two main options, including the basic and the standard insurance policy. Both are written to provide certain types of coverage at stated minimum and maximum amounts. The amount that the insurance company will pay is determined by those limits. However, in the event of an accident, the costs can quickly surpass these limits even in the case of the higher coverage policy. If there is a lien or loan on the car, the amount that the insurance will pay may not be enough to cover the cost of the vehicle if it is completely destroyed.

Most lien holders will demand that the car be covered by more than just basic insurance to protect its investment, but even with the higher cost insurance, it may not be enough. That is when the GAP insurance policy comes in handy. As its name implies, GAP insurance covers the remaining amount that the initial insurance policy did not.

If you owe money on your vehicle, you will typically owe far more than what the insurance company will pay. Most insurance companies pay out only on what the car is currently worth, not what it cost. Even if you have an accident five days after buying the car, you will not get the amount that you paid for the car less than a week ago. And, if you financed the car, there will be additional expenses beyond just what you paid for it, which means that the balance you have to pay for the car you just wrecked will be fairly substantial.

Remember, financing does not include just the cost of the car itself but also interest, taxes and fees that can vary from lender to lender. If you wreck your car, you must still pay off the balance.

How GAP Insurance Works

In New Jersey, the standard policy has coverage limits for property damage. In the event of an accident, that amount will go toward paying off all of the costs associated with the accident, including the other car, other structures that were damaged and your own vehicle. If there is an amount remaining, that will become your personal responsibility to pay out. If you have a GAP insurance policy in place, it will pick up the remainder to prevent it from coming out of your pocket.


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Dan Walker graduated with a BS in Administrative Management in 2005 and has been working in his family’s insurance agency, FCI Agency, for 15 years (BBB A+). He is licensed as an agent to write property and casualty insurance, including home, auto, umbrella, and dwelling fire insurance. He’s also been featured on sites like Reviews.com and Safeco. He reviews content, ensuring that ex...

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Written by Daniel Walker
Licensed Car Insurance Agent for 15 Years Daniel Walker

Melanie Musson is the fourth generation in her family to work in the insurance industry. She grew up with insurance talk as part of her everyday conversation and has studied to gain an in-depth knowledge of state-specific insurance laws and dynamics as well as a broad understanding of how insurance fits into every person’s life, from budgets to coverage levels. Through her years working in th...

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Reviewed by Melanie Musson
Published Insurance Expert Melanie Musson