What Is Stopgap Insurance?

by Tim Plaehn; Updated September 26, 2017
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A stopgap insurance policy fills a financial risk that occurs due to insurance rules or widely followed policy practices. There are two types of stopgap policies that are most widely used, one by businesses in certain states and the other by individuals to supplement their auto insurance.

Gap Filling Worker's Compensation Protection

In the six states or jurisdictions where employers must obtain worker's compensation coverage from a state-run program, businesses purchase extra liability insurance to cover the gap left by the state-mandated plan. The private stopgap liability insurance plans are the most widely used stopgap type of policies. As of publication, the jurisdictions where business liability stopgap provides necessary coverage are North Dakota, Ohio, Puerto Rico, Washington, Wyoming and the U.S. Virgin Islands.

Gap Insurance Above Auto Insurance Payments

Referred to as auto stopgap or just gap insurance, this type of policy pays when the regular insurance payout for a totaled car is less than the loan or lease payoff. Auto insurance pays the replacement value for a car, and with a lease or low-down financing loan, the loan balance may be much larger than the replacement value. Auto gap insurance pays the difference, so if you total your car you won't owe extra to the lender or leasing company.

About the Author

Tim Plaehn has been writing financial, investment and trading articles and blogs since 2007. His work has appeared online at Seeking Alpha, Marketwatch.com and various other websites. Plaehn has a bachelor's degree in mathematics from the U.S. Air Force Academy.

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