What is Gap Insurance?
Gap insurance (Guaranteed Asset Protection) covers the difference between what your car is worth and what you owe on your loan or lease.
Example: Why Gap Matters
| Your car loan balance: | $25,000 |
| Car's actual cash value (ACV): | $20,000 |
| The "Gap" you owe: | $5,000 |
Without gap insurance, YOU pay that $5,000 out of pocket—for a car you can't even drive anymore.
How Much Does Gap Insurance Cost?
| Where to Buy | Average Cost | Notes |
|---|---|---|
| Car Insurance Company | $20-40/year | Best value, add to existing policy |
| Dealership | $400-800 one-time | Often overpriced, rolled into loan |
| Standalone Provider | $200-400 one-time | Good if insurer doesn't offer |
💰 Pro Tip: Never buy gap insurance from the dealership. Adding it to your car
insurance policy costs $20-40/year vs. $500+ at the dealer.
Do You Need Gap Insurance?
✅ You NEED Gap If:
- You made less than 20% down payment
- Your loan term is 60+ months
- You leased your vehicle
- You rolled over debt from previous car
- You drive 15,000+ miles/year
- Your car depreciates fast (some brands)
❌ You DON'T Need Gap If:
- You paid cash for your car
- Your car is worth more than you owe
- You made a large down payment (20%+)
- Your loan is nearly paid off
- You have enough savings to cover gap
When to Cancel Gap Insurance
Gap insurance isn't needed forever. Consider canceling when:
- Your loan balance drops below car's value
- You've paid off 20%+ of the loan
- Your car is 2-3 years into ownership
Best Gap Insurance Providers
- Progressive - $20/year, easy to add online
- GEICO - Competitive rates, good claims
- Allstate - Includes with SafeRide package
- Nationwide - "New car replacement" alternative