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Gap Coverage

Gap insurance – what is it and how much coverage do I need?

Gap insurance protects you from high loan costs if your car can’t be recovered.

Gap insurance can make sense in certain scenarios. It covers you if your car is stolen or totaled and you owe more on a loan than your car is worth.

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What is gap insurance?

When you buy a car, it immediately starts depreciating. Here’s the issue: If your car is stolen or totaled, your insurer will pay only what the vehicle is worth. Meanwhile, you’re still stuck paying back your entire loan.

This creates a gap between how much money you receive from your insurer and what you still owe to your bank. For example, your insurer may pay you $15,000 for your stolen car, but you might owe $20,000 in loans. Gap coverage would pay for the difference of $5,000.

Does it come with a deductible?

Gap insurance usually doesn’t come with a deductible. In some cases, it can actually pay for your collision or comprehensive coverage deductible.

What is a deductible?

The deductible is what you’ll pay before your insurance company will pay a claim.

Let’s say you file a claim to your insurance company for a $5,000 car repair bill. Your insurance covers you for that amount, but it includes a $500 deductible. This means you must pay $500 out of your own pocket before your insurance will cover the other $4,500.

Gap insurance in action

You’ve had your car for a year, and you still owe $30,000 on it. One day your vehicle is stolen. You file a claim with your insurer, who assigns your car a market value of $23,500.

You receive $23,000 through your collision coverage (you have a $500 deductible). However, now you still owe $7,000 on your car loan. Luckily, your gap coverage covers you for that amount, and you pay off your loan.

Why should I buy gap insurance?

It’s a terrible feeling when you still have to pay for a car you don’t have anymore. Gap insurance can help you avoid that scenario.

The biggest benefit to gap insurance is that it covers you if you still owe a large amount on your car loan. That said, consider buying a policy if you:

  • Only put a small down payment on your vehicle.
  • Took out a loan with repayment terms of 60 months or longer.
  • Leased your vehicle.
  • Have a car that depreciates quickly.
  • Buy a new car — it’ll depreciate significantly as soon as you drive it off the dealer’s lot.

Pass on gap insurance if you bought your car outright — you simply don’t need it. You also probably don’t need a policy if you put down a significant down payment of 20% or more.

How much does gap insurance cost?

Gap insurance usually costs $20 to $30 a year. You only need it for a few years, while you pay back your loan.

How do I buy gap insurance?

Your car dealer will offer gap insurance — but it will often be very expensive. If you want to buy a policy, talk to your current auto insurer for a better price. You can also find coverage that works for you by comparing providers in our insurance comparison tool .

Bottom line

Gap insurance can keep you from paying an arm and a leg if you lose your car. To save money, make sure you buy it from your insurer, and not from a car dealer.

Find the cheapest rates

Use our magical comparison tool to find providers with the cheapest rates in your area. Enter your zip code below and click ‘Compare’.

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