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Compare gap insurance for loaned or leased cars

Pay off your car loan with gap coverage if you total your car in an accident.


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Gap insurance, also known as guaranteed asset protection, protects your car loan or lease if your car gets totaled or stolen while you’re making payments. However, while many people benefit from this low-cost coverage, not everyone needs it.

Is gap insurance worth it?

The biggest benefit to gap insurance is that it covers you if you owe a large amount on your car loan. New cars are at risk for having a loan amount left over during the first few years after you buy it. That’s because your new ride will depreciate as soon as you drive it off the dealer’s lot. And if you need a car and end up with an outstanding debt after an accident, you’ll have a harder time getting a car loan for a replacement vehicle.

When do I need gap insurance?

Consider buying gap insurance if:

  • You bought or leased a new car.
  • Your car loan has repayment terms of 60 months or longer.
  • You still owe a lot on the car loan.
  • You put a small down payment on your vehicle.
  • You bought a high-value car that depreciates quickly.
  • You need your car and have no backup ride.
  • You rolled an old car loan into your new loan.

When can I skip gap insurance?

You won’t need gap insurance if:

  • You bought your car outright.
  • You’re close to paying off your loan.
  • You set a down payment of 20% or more on your car loan.
  • You paid down your car loan to its current value.
  • Your policy uses your car’s agreed value.
  • You could afford another car outright if yours was totaled.

How much does gap insurance cost?

Gap insurance usually costs as little as $20 to $30 a year or $2 a month as an add-on to your car insurance policy. You typically need it for a few years while you pay back your loan. With most car insurance companies, you can add gap insurance to your existing policy. Most companies offer gap coverage, including Progressive, Allstate, AAA, Nationwide and USAA.

How do I get gap insurance?

The best deal is to get gap insurance as an add-on to your car insurance. Nearly every car insurer lets you buy gap coverage with a full coverage policy that has both collision and comprehensive coverage, which you’ll need for your car loan anyway.

Your car dealer or financer also will offer gap insurance, but it’s often very expensive — to the tune of several hundred dollars a year, compared to the $20 you might pay through your car insurance.

Don’t let your lender or dealer convince you that gap coverage is necessary to drive off the lot or get your loan approved. It’s almost never a good financial decision to get gap coverage from your car dealer because you’d be paying hundreds more for the same coverage.

Compare car insurance quotes with gap coverage

Name Product Roadside assistance New car protection Accident forgiveness Safe driver discount Available states
All 50 states
Discover coverage that’s broader than competitors, valuable discounts up to 30% off and perks like shrinking deductibles that reward no claims.
All 50 states
Affordable car insurance with highly rated customer service. Only available to military members and veterans and their family.
All 50 states
Your dedicated agent can help you find the best savings with multiple discounts and rewards programs.
The AARP Auto Insurance Program from The Hartford
All 50 states & DC
Drivers over age 50 can enjoy low rates and perks designed for mature drivers, plus freebies and AARP member perks like free replacement cost coverage.
Liberty Mutual
All 50 states
Earn free accident forgiveness after five years claims-free and customize your policy anytime online at the tap of a button.

Compare up to 4 providers

What is gap insurance and how does it work?

Gap insurance protects you for the amount, or gap, left on your loan if your car is stolen or totaled. With a car loan, you’re paying for a brand new car that depreciates the minute you drive it off the lot. If you need your car totally replaced, car insurance only covers your car’s current market value, not your car loan amount.

Some lenders require gap insurance, but you’ll have to check your loan contract to make sure.

Here’s a common example of how gap insurance might help you:

  • Say you took out a car loan and bought a car for $20,000. Then your car is stolen.
  • Your insurance company pays you $15,000 for your stolen car’s value, what it’s worth a year later.
  • You’ve been making payments on your loan but still owe $18,000, so your payout wasn’t enough to cover the remainder of the loan.
  • Gap coverage would pay the difference of $3,000 to cover the rest of your loan.
  • If you didn’t have gap coverage, you’d owe the bank $3,000 on a car you no longer have.

How does gap insurance work for a leased car?

With a car lease, you make a small down payment and pay monthly to rent your car for several years. Gap insurance could still be worth it for a leased car, and some leasing companies require this coverage to protect their investment.

If your leased car is totaled without gap insurance, you’ll owe the remaining payments on your lease. And after driving the car for a year or two, the leased car will depreciate in value just like a new car.

Ask an expert: When should I consider gap coverage?

Dennis Sawan

Dennis Sawan

Managing partner of Sawan & Sawan

“A general auto insurance policy is designed to pay the lender the vehicle’s current cash value — not the current loan balance. The difference can be thousands of dollars. The average new vehicle loses 30% of its value the first year. By year three, that loss in value will be close to 50%. This is where gap insurance can help.

Consider this example: If your vehicle cost $25,000 new, your insurer would probably pay about $18,000 for a total loss during the first year. That’s a $7,000 shortfall. Depending on the amount of your down payment (or trade-in equity), you would still be responsible to your lender for the balance of the loan. If you have car gap insurance, your insurer pays the difference, not you.

While there is no one-size-fits-all answer regarding the need for gap insurance, you’re a likely candidate if you:

  • Lease a vehicle.
  • Finance for 60 months or more.
  • Put less than 20% down.
  • Roll negative equity from a previous vehicle loan into a new vehicle loan.
  • Drive more than the average 15,000 miles annually.
  • Purchase a vehicle with a history of high depreciation rates.”

    What to watch out for with gap insurance

    • You’ll see exclusions. Check any exclusions listed in your policy that might prevent a payout. Losses due to circumstances like impaired driving or illegal activities can usually be marked down as not covered.
    • You need full coverage. Gap insurance may be available only if you have a policy that includes comprehensive coverage. Full coverage is typically required by your lender anyway. You’ll need to add gap coverage to your full coverage policy since it isn’t included automatically with full coverage.
    • Don’t purchase gap insurance from a dealer. Not only is it more expensive, there’s also a chance it’s a common car dealer scam. Unscrupulous car dealers might pocket your gap insurance payment without actually giving you coverage, or offer coverage with unreasonable exclusions.

    Case study: John’s accident

    John bought a new $10,000 car using a car loan provided by his dealer. The terms of his loan states he needs to repay a total of $11,000 to the dealer after factoring in interest.

    He insured the new car at market value with a comprehensive car insurance policy. The moment he drives it off the lot, his new car turns into a second-hand car worth only $9,000.

    Soon after, John gets in an accident and totals his new car. Fortunately, he has collision car insurance. He makes a claim and gets reimbursed for the total market value of the car, which is $9,000. Now he has no car and still owes his car dealer $2,000.

    John uses his car gap insurance to cover the $2,000 he needs to pay the remainder of his loan. His insurance pays off the full remainder of the loan. Now he can shop for a new car without any existing debt.

    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 compare the best rates with an online insurance comparison tool and avoid the expensive option from your car dealer.

    Common questions about gap insurance

    Learn more about gap insurance

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