How Much is Gap Insurance and Where to Buy?

A brand new car purchase is an expensive expense that many people cannot afford. It often requires financing. You will still need to repay the loan amount if the vehicle is stolen or damaged.

If your policy covers new car replacement, standard car insurance will pay the cost of purchasing a new vehicle. Gap insurance covers the gap between what your claim payout might cover and what your vehicle’s actual value is. Guaranteed Asset Protection (GAP), an optional endorsement, pays the difference between your loan amount and the vehicle’s depreciated values.

What is gap insurance?

Gap insurance, optional car insurance coverage, covers the gap between vehicle’s actual cash value (ACV), and the amount owed.

You may wonder if gap insurance is necessary if you plan on buying or leasing a car.

Gap insurance is usually an optional coverage for drivers. However, in some states, an auto dealer must offer gap insurance at the time of purchase.

Imagine that you are involved in an accident. Your vehicle is now worth only $15,000. Your auto loan balance is $18,000, but your vehicle now only has a value of $15,000. Gap insurance would pay the $3,000 difference between what your car owes and its current market value after taking into account deductibles. Some policies cover the deductible.

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Gap insurance is typically only available for vehicles that are new or less than one year old that have been stolen or totaled. Even if the vehicle’s value is greater than the financing amount, it does not cover damages or accidents. You will not be able to use the financed amount to purchase another vehicle. To cover the costs of buying a new car, you will need replacement coverage.

What is the cost of gap insurance?

Gap insurance can be purchased from only a few sources, including the dealer or lender financing your vehicle or an insurance provider. Gap coverage is typically more expensive if you get it from the dealership or lender versus adding it to your car insurance policy.

That said, a few factors may impact your gap insurance cost. Your insurer will likely consider several factors, including your vehicle’s actual cash value (ACV), geographic location, age and auto insurance claims history. To determine if gap insurance is right for you, ask your auto insurance company if they offer it.

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Where can I buy gap insurance?

Some auto insurers, like Geico, do not offer gap insurance, while others vary in how this protection is offered and how it works. Here are a few examples:

  • State FarmState Farm is the largest U.S. auto insurer. However, they do not offer gap insurance. Instead, they have a Payoff Protector feature that anyone who gets a car loan from a State Farm (an alliance with US Bank), can access. Payoff Protector is only available for full coverage car insurance. However, this policy doesn’t necessarily need to be underwritten or approved by State Farm. You are eligible for the free Payoff Protector even if you have an auto insurance policy written by another insurance company.
  • AllstateThe Allstate gap program eliminates the difference between the primary auto insurance settlement amount and the balance remaining on a vehicle. It covers losses up to $50,000 and pays a deductible. Your deductible is the amount you are responsible for. It is subtracted from the loss insurance payout.
  • ProgressiveProgressive limits coverage to 25% of the vehicle’s actual cash value. For as low as $5 per Month, you can get gap insurance coverage that is bundled with your existing policy.
  • All over the countryNationwide provides gap insurance, but it does not waive your deductible if you file for a claim. Be aware of your deductible and whether you are able to afford it in the event of total loss.
  • AAAAAA offers gap coverage for fully insured vehicles, which includes optional comprehensive and collision insurance. If your vehicle is declared totaled, the insurer will waive your deductible up to $1,000.
  • EsuranceEsurance (and other auto insurances) is gap insurance that includes auto loan and lease coverage. If you own full-coverage insurance and are financing a vehicle, or leasing it out, you may be eligible for coverage.
  • USAAUSAA auto insurance is available for active and retired military personnel and their families. USAA provides Total Loss Protection to vehicles less than 7 years old with a loan greater than $5,000. It will reimburse up to $1,000 for deductibles.
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Is it worth buying gap insurance?

Lenders and auto insurance companies recommend that you have gap insurance for your new vehicle.

  • The auto loan has a length of five years or longer
  • High-interest rates are due to the fact that the principal on the vehicle is more difficult to pay off than the depreciation.
  • A low down payment was made, usually less than 20%

It is a good idea to compare the amount you will pay for your vehicle over the term of your financing to the MSRP or agreed-upon sale price. This will help you determine if there is a gap. Gap insurance is a good option in the event that you have one.

Remember that your gap cost is subject to change. The difference between what you owe versus what your vehicle is worth decreases with each month you make payments and the car appreciates.

Gap insurance may not be required in certain situations:

  • A large down payment was required
  • If the original loan term was very short, you might consider extending it for three years or less.
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You can cancel your coverage at any moment. This is usually only possible if the vehicle’s market value exceeds the amount owing. Consider the risk and cost of gap insurance if you aren’t sure if it is worth it. Gap insurance is fairly inexpensive and in many cases can be added to your existing full-coverage policy for a nominal cost per year. This may be less than the difference in your car’s worth and what you owe in the event of a major crash.

Leased cars are covered by gap insurance

Leasing vehicles can depreciate very quickly, just like any other car or SUV. If you don’t have a lot of money down but still owe large amounts on your total lease payments, you may owe more on the vehicle’s value if you are in an accident. In this situation, gap insurance coverage for your lease might be a smart financial decision.

It may be helpful to compare the total cost of the lease, including taxes and any other charges, to see if there is a gap.

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Just like a car that you bought, the difference in what you owe versus what your car is worth decreases with each month you make payments and the car gets more valuable. You may not be required to have the coverage for the entire term of your lease. It may be only necessary for a few months depending on the terms of your lease agreement.

Questions frequently asked

How can I get the best gap insurance deal?

There are three options when it comes to buying gap insurance: through a dealer, an auto insurer standard or a specialist gap insurance company.

Although it may not be practical for all drivers, a dealership-based gap insurance policy can prove too costly. You can shop around among the dealers, auto insurance companies and companies that specialize on gap insurance. Your best deal might come from your current car insurance carrier. You may be eligible to purchase gap insurance at a marginal annual price if you have full coverage.

Gap insurance: Can you get your money back?

You may be eligible for a refund of any unused gap insurance if you pay off a vehicle loan in full before the due date. In some states, insurers are required to refund premiums if a 36-month loan that includes gap coverage for 36 month is paid within 24 months.

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Sometimes, your insurer might not inform you if you are entitled to a refund. Keep your payoff letter, original contract information or insurance information, and an odometer disclosure declaration statement. Before purchasing gap insurance, it is important to understand the refund policy of your insurer. You might contact your state’s insurance commissioner or state commerce department to find out more about the state’s regulations. Also, learn what to do if your provider refuses to refund you.

What happens if your car is totaled and you need gap insurance?

Gap insurance only provides financial protection for the gap between the actual cash value of a vehicle at the time of a total loss claim and the current amount still owed on an auto loan. The state law and/or the insurance provider can change the total loss.

If I have full coverage, do I still need gap insurance?

While you might feel like your auto insurance coverage is robust, auto insurers typically do not offer any one policy called “full coverage” that is designed to protect you against every possibility. Instead, you can get more protection by layering different types of coverage (e.g., liability, collision, comprehensive) together. Some drivers find adding gap insurance to their existing coverage to give them more peace of mind. Each driver’s coverage requirements and benefits may vary.