Understanding GAP Insurance Coverage
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Gap insurance (guaranteed asset protection) pays the difference between what you still owe on your car loan or lease and your car’s actual cash value if it is totaled or stolen. Because new cars lose value quickly, your loan balance can be higher than what your insurer pays for a total loss. According to Insurify, gap insurance typically costs $2–$20 per month when added to an auto insurance policy, compared with a one-time charge of $400–$1,000 when bought from a dealership. It is most useful if you made a small down payment, have a long loan or are leasing.
If your financed or leased car is totaled or stolen, your collision or comprehensive coverage pays the car’s actual cash value (ACV), minus your deductible. If you owe more than that amount, gap insurance helps pay the remaining loan or lease balance, up to your policy’s limits.
Example: You owe $25,000 on your car loan, and your car is totaled. Your insurer values the car at $20,000. Without gap insurance, you would still owe the $5,000 difference to your lender. Gap insurance is designed to cover that $5,000 shortfall. (Illustrative example only; your deductible and policy terms affect the payout.)
If you have less than 20% down on a car or bought a car from a lot that finances you on the spot, you may have a need for a GAP insurance policy. You have full coverage on your car because it is financed, but the actual cash value of your vehicle may be far less than the amount you owe. In the event of a theft or total loss, the difference between what you owe and the settlement can leave you with no car and a sizable debt. It is important to note that “full coverage” most often does NOT include GAP coverage.
| Gap Insurance Covers | Gap Insurance Doesn't Cover |
|---|---|
| Loan balance shortfall after a total loss | Repairs to a damaged vehicle |
| Lease payoff gap | Your deductible (in most policies) |
| Payoff gap after the car is stolen and not recovered | Missed payments, late fees or finance charges |
| Negative equity (some policies only) | Extended warranties or other add-on products |
| Where You Buy It | Typical Cost Range | How You Pay |
|---|---|---|
| Auto insurance company | $2 – $20 per month | Added to your premium |
| Auto loan company / lender | $400 – $700 one-time | Up front or rolled into your loan |
| Car dealership | $400 – $1,000 one-time | Up front or rolled into your loan |
If a dealership or lender product is rolled into your loan, you may also pay interest on it. It is worth comparing the price from your auto insurer before you sign.
Gap insurance may be worth considering if any of these apply to you:
You likely don’t need it if you paid mostly in cash, made a large down payment, chose a short loan, or your loan balance is already lower than your car’s market value.
No state law requires gap insurance. However, a lender or leasing company may require it as a condition of your loan or lease, and many leases already include it. To add gap coverage through an auto insurer, you usually need to carry both collision and comprehensive coverage.
You can add a GAP insurance policy and truly make your protection full coverage. Car GAP insurance protects you in the event of loss or theft. Though will still pay the deductible for a loss, the GAP auto insurance policy insures that you will not be stuck with not only the loss of your vehicle but debt as well.
So what is covered by GAP coverage on cars, SUVs, Crossovers, or trucks? It is almost easier to understand a list of what is not. Engine failure or other repairable failures on a vehicle are not. It will not pay your deductible in the event that your vehicle is lost or stolen. It is not life insurance and will not cover death to the owner. It will cover theft or total loss of the vehicle for the difference of what is owed on the vehicle versus the actual cash value as determined by your auto insurance company.
You can typically buy gap insurance from your auto insurer, a lender or credit union, or a car dealership. Some insurers offer “loan/lease payoff” coverage, a similar product that may pay a set percentage of the car’s value rather than the full gap. Availability varies by company and state:
| Insurer | Offers Gap Coverage? | Type |
|---|---|---|
| Progressive | Yes | Loan/lease payoff add-on |
| Allstate | Yes | Add-on endorsement |
| Liberty Mutual | Yes | Add-on endorsement |
| State Farm | Limited | Tied to eligible auto loans |
Yes, you can usually cancel gap insurance. Once your loan balance falls below your car’s market value, the coverage may no longer be needed. If you bought it through your auto insurer, you can typically remove it from your policy. If you bought it from a dealer or lender and pay off or refinance the loan early, you may be eligible for a prorated refund of the unused portion, depending on the contract and your state’s rules. Contact the provider to request cancellation.
If any of the following things apply to you:
• Made a small or no down payment on a new car
• Loan term longer than 48 months
• High mileage driver
• Lease your car
• Vehicle or make of vehicle has a high depreciation rate
Gap insurance pays the difference between what you owe on your car loan or lease and your car’s actual cash value if it is totaled or stolen.
According to Insurify, gap insurance typically costs $2–$20 per month through an auto insurer, compared with a one-time charge of $400–$1,000 at a dealership.
It can be if you owe more on your car than it is worth, such as after a small down payment, a long loan or a lease. It is usually not needed if you have significant equity in the car.
Buying through an auto insurer is usually cheaper. Dealer and lender gap products are often a one-time fee that may be rolled into your loan, where you may pay interest on it.
In most cases, no. Standard gap insurance typically does not pay your collision or comprehensive deductible. Check your policy terms.
Often, yes, but eligibility depends on the provider. Some insurers limit gap coverage to newer vehicles or original owners, so ask before you buy.
It depends on the provider. Many insurers require you to add it within a limited time after buying or financing the car, so it is best to arrange it when you buy.
Yes. You can usually cancel once you no longer owe more than the car is worth. If you prepaid through a dealer or lender, you may qualify for a prorated refund.
Paige Cerulli Paige Cerulli is a freelance content writer and journalist who specializes in personal finance topics. She graduated from Westfield State University and brings more than a decade of professional writing experience to the ConsumerCoverage team. Paige’s work has appeared in outlets including USA Today, Business Insider, and more.
