Gap Insurance: What It Is & Do You Need It?
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What is Gap Insurance?
Gap insurance (Guaranteed Asset Protection) covers the "gap" between what you owe on your car loan and what your car is actually worth. Cars depreciate 20-30% in the first year alone—if your car is totaled, you could owe thousands more than the insurance payout.
📊 Gap Insurance Example
- You owe on loan: $25,000
- Car's actual value: $20,000
- Insurance pays: $20,000 (minus deductible)
- The Gap: $5,000 you'd owe without gap insurance
- With gap insurance: $0 out of pocket
How Much Does Gap Insurance Cost?
| Where to Buy | Cost | Recommendation |
|---|---|---|
| Auto insurer (add to policy) | $20-40/year | ✅ Best option |
| Car dealer (one-time) | $500-700 | ⚠️ Overpriced |
| Standalone gap provider | $200-400 (one-time) | ⚠️ Middle ground |
Pro tip: Never buy gap insurance from the dealer. Adding it to your auto policy costs 90% less and provides the same coverage.
Do You Need Gap Insurance?
✅ You NEED gap insurance if:
- You put less than 20% down
- Your loan term is 60+ months
- You're leasing (often required)
- You rolled negative equity into your loan
- Your car depreciates quickly
- You drive a lot of miles
❌ You DON'T need it if:
- You put 20%+ down
- Your loan balance is less than car value
- You own your car outright
- You have enough savings to cover a gap
How Gap Insurance Works
Your Car is Totaled or Stolen
The insurance company declares your car a total loss.
Regular Insurance Pays Out
Your comprehensive/collision coverage pays the actual cash value (ACV) minus your deductible.
Gap Insurance Kicks In
Gap coverage pays the difference between the ACV and your remaining loan balance.
Loan is Fully Satisfied
You owe nothing and can move on without debt from a car you no longer have.
Where to Get Gap Insurance
Progressive
- ✅ Loan/Lease Payoff coverage
- ✅ ~$30/year add-on
- ✅ Easy to add online
GEICO
- ✅ Gap coverage available
- ✅ ~$20-40/year
- ✅ Bundle discounts
Allstate
- ✅ "New Car Replacement"
- ✅ Better than gap for new cars
- ✅ Replaces with new model
Gap Insurance FAQs
What is gap insurance?
Gap insurance (Guaranteed Asset Protection) covers the difference between what you owe on your car loan and what your car is worth if it's totaled or stolen. Without it, you'd have to pay that "gap" out of pocket.
How much does gap insurance cost?
Gap insurance costs $20-40 per year when added to your auto policy, or $500-700 as a one-time payment from a dealer. Buying through your insurer is almost always cheaper.
Can I cancel gap insurance?
Yes! Once your loan balance is less than your car's value, you no longer need gap insurance. You can cancel anytime and may receive a prorated refund if you paid upfront.
Protect Your Car Loan Today
Add gap insurance for as little as $20/year. Get quotes now.