When your car is totaled, gap insurance saves the day.
No matter what that slick salesperson from the finance office tells you, you don’t have to buy gap insurance from the car dealership. And, depending on the terms of your loan, your down payment, and the vehicle’s depreciation rate, having full coverage doesn’t mean you’re fully protected.
What Is Gap Insurance?
“Gap” is an acronym for “guaranteed asset protection” (GAP). Gap insurance protects you if your car is totaled or stolen by paying the difference between the car’s actual cash value (ACV) and how much is left on your loan. It picks up the “gap” between what your collision insurance covers and what you still owe the bank.
How Does Gap Insurance Work?
Imagine you bought a brand-new car that cost $25,000, and you now owe $20,000. If your vehicle is totaled or stolen, the actual cash value may be $15,000. You pay your $500 deductible, and the insurance company gives you a $14,500 payout. This amount goes to paying down the amount you owe on your car. You still owe a $5,500 loan balance, and your gap insurance will pay that amount.
Gap insurance is optional, or add-on, coverage, but the lender may require it, especially if you lease the vehicle. Only rarely do gap insurance companies cover your deductible. And the coverage works regardless of fault in an accident.
Gap insurance covers:
- Negative equity (or being upside down)—the difference between what the car’s worth and what you owe to the bank
Gap insurance does not cover:
- Bodily injury
- Damage to a non-totaled vehicle—comprehensive coverage and collision coverage on your auto policy cover this
- Engine failure
How long does gap insurance last? The best answer is until you cancel it. You can remove it once you owe less than what the vehicle’s worth.
Do I Need Gap Insurance?
When you drive off the lot, your new vehicle takes a 10 percent depreciation hit, and after two years, the value of the car goes down by nearly a third, according to Carfax. Without gap insurance, you could take a sizable risk. You should consider gap insurance if you have:
- A lender who requires it
- A leased vehicle
- A car loan term of 60 months or longer
- Less than 20 percent down or no down payment at all
- A high-interest rate loan
- Negative equity rolled over from your last auto loan
- A luxury or high-value vehicle, because they depreciate faster than average
Check Kelley Blue Book or Edmunds.com when you renew your auto insurance policy to see if you can drop gap insurance coverage. Need to check for a better rate? Take a few minutes at Insurify.
How Much Does Gap Insurance Cost?
Is gap insurance worth it? It can be a no-brainer if you owe a lot more than what the car’s worth. And you don’t have to break the bank either.
You can expect to dish out about $5 a month or $60 a year on top of your standard car insurance. Fox Business says the dealership can charge up to $500 to $700 a year. There are also stand-alone policies from third-party companies marketed between $200 and $300.
Stand-alone companies and dealerships make you pay up front, and the dealership could roll gap insurance into your loan, meaning it will cost interest, too. It’s often cheapest for the consumer to get gap and car insurance from the same company.
But it’s not too late to save if you signed up at the dealership. You can often cancel the policy and get a refund for any unused premium. Just get a new policy before canceling the old one.
How to Pick a Gap Insurance Company
When selecting a company, ask:
- Does the auto insurer cover the deductible? Typical deductibles are $500 or $1,000, and that’s a nice chunk of change to save. Rarely, you’ll find a company like Allstate who covers the deductible too, but most don’t.
- Is the insurer reputable? If you’re thinking about a stand-alone company, it’s a smart idea to check BBB ratings and online reviews.
- Can you cancel later? You’ll only need it until you owe less than what the car’s worth. Bring up any questions about the cancellation policy and refunds before you sign up.
- How much is it? It’s hard to know until you do a quote, but you can use a tool like Insurify to compare 10+ quotes in a few minutes.
Top 7 Companies for Gap Insurance in 2020
Here are the top seven companies for gap insurance ranked by their total number of car insurance policies, as reported by the Insurance Information Institute. All have similarly excellent customer satisfaction rankings with J. D. Power. Your gap coverage will be an endorsement to your regular car insurance, and you can cancel at any time.
Do you have GEICO, Farmers, or another company that doesn’t offer gap insurance? You can compare prices from insurance providers in a flash at Insurify.
Check out the top seven with two honorable mentions:
Progressive calls it “loan/lease payoff,” but it is gap insurance. It covers up to 25 percent of the actual cash value of your car.
2. Allstate and 3. Esurance
Allstate owns Esurance, so they’re listed together. Both protect new and used vehicles financed or valued up to $100,000. Your gap insurance will cover any amount owed that’s $50,000 or less. These two are the only ones reviewed that will pay your deductible up to $1,000.
4. Liberty Mutual
Liberty Mutual requires you to buy gap insurance at the same time as the car, and you must be the car’s first owner. So that means used cars would not qualify. They also don’t offer gap insurance in every state, but you’ll know for sure when you get your quote.
Nationwide’s gap insurance policy will be “on your side” in case of a total loss or a stolen car. You still must pay the deductible, but Nationwide will fill in the gap.
6. American Family Insurance
At American Family, they call gap insurance “loan or lease assistance coverage” or “lease/loan gap insurance.” Am Fam’s gap insurance limits pay up 25 percent of the actual cash value of the vehicle.
Travelers calls it “loan/lease gap insurance.” You must be the vehicle’s original owner, and you must buy the car from a new car dealer to be eligible for the coverage.
Honorable Mentions: State Farm and USAA
State Farm doesn’t offer gap insurance, but they have a feature (at no added cost) called Payoff Protector that applies if you get a loan from one of its banks. It functions just like gap insurance if you have full coverage insurance. And the full auto coverage doesn’t have to be with State Farm to qualify.
USAA doesn’t offer gap insurance through its insurance company. But, like State Farm, if you get your loan from a USAA bank, you can buy a product called Total Loss Protection that is gap insurance.
FAQ: Gap Insurance Companies
Which insurance companies offer gap insurance?
Here are the top seven companies for gap insurance, ranked by the total number of car insurance policies, as reported by the Insurance Information Institute: Progressive Allstate Esurance Liberty Mutual Nationwide American Family Travelers Other regional and stand-alone car insurance companies offer gap insurance, too, but they often cost more and require an up-front payment.
Can I buy gap insurance by itself?
Yes, you don't have to buy gap insurance at the dealership. Dealerships can be over three times more expensive than a gap policy purchased with your auto insurance company. There are also third-party insurers that sell stand-alone gap policies. We recommend you get your gap insurance and auto insurance from the same company for the lowest price and the convenience to cancel when you owe less on your vehicle than its cash value.
Where can I compare free car insurance quotes online?
While getting the best deal on gap insurance, why not do the same for your car insurance? You should check a website that collects quotes from the auto insurance companies available in your area. Find a car insurance comparison tool like Insurify to compare up to 10+ real quotes for your combined driver profile and unlock savings and car insurance discounts. Rates can vary based on your driving history and personal profile, but you should be able to find a competitive price. Insurify provides the cheapest car insurance quotes from local companies in just a few minutes.
Conclusion: How to get the best and cheapest car insurance
Fall into the gap, well gap insurance that is. And while you’re protecting the difference between the car’s value and what you owe the lender, why not get the right car insurance, too?
You can use Insurify to compare the best gap and car insurance rates, coverage options, and companies personalized for your price point. Get free car insurance quotes today on America’s best-rated auto insurance comparison site.