What Is Auto GAP Insurance and Should I Get It?
Auto gap insurance covers the difference between your vehicle’s value and the amount you still owe for it. It can protect you from a large expense if your car is totaled or stolen during the early years of a car loan.
How does gap insurance work?
Auto gap insurance protects you if you owe more for your car than it’s worth and it is totaled or stolen.
Normal car insurance covers your car at its market value, or its estimated resale price. However, cars lose value fast. The value of your vehicle can fall below your loan balance after you drive it off the lot. It can stay this way for a few years.
If your car is totaled or stolen during this time, your insurance check won’t fully repay your loan. Guaranteed asset protection, or gap, insurance covers this shortfall. Without it, you have to pay the difference out of your pocket.
Gap insurance explained
If you finance a $40,000 car with a low down payment, you may still owe $36,000 for it after a year. By then, your vehicle may only be worth $32,000 after depreciation. If your car is stolen or totaled, your normal insurance only pays your car’s value, minus your deductible Your deductible is the amount of money you pay out of your own pocket after you file a claim and before your insurance company pays the rest. . Gap insurance covers the remaining $4,000 of your loan.
How much does gap insurance cost?
Gap insurance adds an average of $10 a month to the cost of a typical car insurance policy. You can usually only add it to a full coverage Full coverage includes collision and comprehensive, which cover your own car for damage and theft. policy from the same company.
Average price of gap insurance
| Company | Monthly rate | LendingTree score | |
|---|---|---|---|
 | AAA | $13 |  |
 | Allstate | $10 |  |
 | Farmers | $20 | |
 | Mercury | $4 | |
 | Nationwide | $13 | |
 | Progressive | $4 |  |
 | Travelers | $7 |  |
Although gap insurance is cheap, it can be hard to find.
- Some companies, including State Farm and Geico, don’t offer gap coverage.
- Some, like AAA, don’t offer it in every state.
- Some companies have different names for it. For example, Progressive offers a limited form of gap insurance called loan/lease payoff.
Is gap insurance worth it?
Gap insurance is worth it if your car’s value may drop below the amount you owe for it. This can happen if:
- Your down payment for a new car is less than 20%
- Your loan lasts for more than five years
- You rolled debt from your last car into your current loan
You usually don’t need gap insurance if:
- You put at least 20% down for a five-year loan
- You’ve bought an older, used car. Older cars usually don’t depreciate as quickly as new ones do.
If you keep up with your car payments, your loan balance usually drops below your car’s value in two or three years. Gap insurance is no longer worth it after this happens.
You can find rough estimates of your car’s value on websites like kbb.com. Comparing these to your loan balance can help you decide when you no longer need gap coverage.
Is gap insurance worth it for a leased vehicle?
For leased vehicles, gap insurance covers the difference between your car’s value and your remaining payments. Many leases already include gap coverage, with the cost added to your monthly payments.
If gap protection is built into your lease, you won’t need to add it to your car insurance. If it’s not already included, it may be worth it for the early years of your lease.
How do I get gap insurance?
Several car insurance companies offer gap insurance as a low-cost add-on. Many car loan providers and car dealerships also offer gap protection in one form or another.
Lenders often offer plans known as gap waivers. These are similar to insurance company gap coverage, with a few notable differences.
- Cancellation and refunds: Gap waivers are usually issued for the life of your loan. Some lender plans let you cancel early and get a refund on unused coverage. But some lock you in for longer than you may need the protection. With car insurance, you can remove gap coverage from your policy anytime.
- Payment: You usually have to pay in full and up front for a lender’s gap waiver. If you fold this into your car loan, you pay interest on it, too. When you add gap coverage to your car insurance, the cost is added to your normal insurance payments, without interest.
Car dealerships often also offer gap protection plans. These range from gap waivers to specialty insurance policies.
Regardless of provider, it’s good to choose a gap plan you can cancel when you no longer need it, and without an expensive fee.
How to shop for gap insurance?
If you need gap insurance, you should start by getting a quote from your current car insurance company.
If your current company doesn’t have it, you can consider switching to one that does.
- It’s usually not worth switching to a more expensive company just for gap coverage.
- It usually is worth switching if a company with gap insurance has a cheaper overall rate.
Make sure to compare car insurance quotes from a few different companies when you shop.
Dealers and lenders are likely to offer their own gap plans when you buy your car. Knowing about your insurance company’s plan ahead of time makes it easier to compare all your options.
Frequently asked questions
Gap insurance does not pay when your car is repairable after a car accident or theft. After a total loss, gap insurance does not pay your normal insurance deductible. It doesn’t cover car repairs, missed loan payments or late fees, either.
Full coverage only covers your car up to its market value. It won’t pay off your entire loan if your vehicle is worth less than your loan balance when it’s stolen or totaled. Gap insurance covers this potential shortfall.
Yes, but not on its own. If you add comprehensive coverage to your car insurance, your policy covers your vehicle for theft. If your car is worth less than the amount you owe when it’s stolen, gap insurance covers the difference.
Gap insurance is not required by law. That said, some lenders and most leasing companies require it. You don’t have to get it if it’s not specified in your loan or lease agreement.
If gap insurance is required for a loan or lease, you usually need it to drive a vehicle off the lot. You can usually get it later, when it’s voluntary. Most car insurance companies with gap insurance let you add it to your policy anytime. However, some lender plans are only available when you buy your car.
Gap insurance is sometimes worth it for used cars, especially if they have low mileage. You usually don’t need gap insurance for an older used car. Older cars don’t depreciate as quickly as newer ones. You can look up a car’s estimated value on sites like kbb.com to help you decide.
Insurance company gap coverage usually has better payment and cancellation terms than dealership plans. It’s good to avoid dealership plans that lock you in for the life of a loan or charge an excessive early termination fee.
The gap in gap auto insurance usually stands for guaranteed asset protection. Some car insurance dealerships use gap as an acronym for guaranteed auto protection.