Gap Insurance
Covers the difference between what you owe and your vehicle's value.
Typical cost: $20 – $700 (varies by source)
What Is Gap Insurance?
Gap insurance (Guaranteed Asset Protection) covers the difference between what you owe on your auto loan or lease and the vehicle's actual cash value if it's totaled or stolen. New vehicles depreciate 20-30% in the first year, often leaving you "upside down" on your loan.
When You Need It
Gap insurance is essential when you make a small or no down payment, finance for more than 60 months, lease a vehicle (most leases require it), roll negative equity from a previous loan into a new one, or drive a vehicle that depreciates quickly.
Where to Buy
You can purchase gap insurance from your auto insurer, the dealership, or your lender. Auto insurers typically offer the best rates at $20-$40 per year, while dealer-sold gap coverage can cost $500-$700 as a one-time charge. Always compare prices before purchasing.
What's covered
Loan/Lease Payoff
Pays the difference between your insurance payout and remaining loan or lease balance.
Total Loss Coverage
Activates when your vehicle is declared a total loss from an accident or theft.
Theft Protection
Covers the gap amount if your vehicle is stolen and not recovered.
Deductible Coverage
Some gap policies also cover your comprehensive or collision deductible.
New Car Replacement
Premium alternative that pays for a brand-new replacement vehicle instead of the gap.
Pros and cons
Advantages
- Protects against owing money on a totaled vehicle
- Very affordable—as low as $20-$40 per year through auto insurers
- Essential for leased vehicles where it may be required
- Peace of mind for long-term auto loans
- Covers theft in addition to accidents
Considerations
- Only needed for the period when you owe more than the car is worth
- Dealer-sold gap insurance is often overpriced
- Not needed if you made a large down payment
- Becomes unnecessary as loan balance decreases
- Some policies exclude certain fees and taxes from coverage
Frequently asked questions
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