What's commonly called GAP insurance isn't insurance at all, except in a small number of states.
The GAP Alliance, a 4-year-old lobbying group that includes captive finance companies, insurance companies and GAP providers, is working to change state laws in at least seven states to have GAP, or Guaranteed Asset Protection, legally redefined so that it is no longer regulated like insurance and so that state laws are consistent.
Michigan, for example, is in the process of adopting a law that, in part, mimics a statute model that the GAP Alliance recommends.
According to the American Financial Services Association, Alaska, Montana, Nebraska, Nevada, North Dakota, Oregon and Utah still treat GAP like insurance. But the details vary significantly state by state. For instance, there can be a long lead time between a state legislature passing a law making it easier to sell GAP and state regulators passing the actual rules that dealerships have to follow.