What Is Gap Insurance?
Gap insurance helps pay the difference between what your car is worth and what you still owe on your loan or lease if the vehicle has been totaled or stolen.
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Written byDoug Bailey
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Doug BaileySenior Content Writer
Doug Bailey is a senior content writer at Insurify. Doug is an experienced business writer having worked more than a decade as a reporter and business editor at the Boston Globe, covering financial services and the insurance industry. Most recently, Doug was a regular contributor to InsuranceNewsNet, a news and information service for the insurance and financial industry.
Doug is a native New Englander hailing from Maine and works in Insurify’s Cambridge office.
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Edited byKatie Powers
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Katie PowersLicensed P&C Agent, Senior Insurance Editor
Licensed auto and home insurance agent
4+ years experience in insurance and personal finance editing
NPN: 20564519
Katie uses her knowledge and expertise as a licensed property and casualty agent in Massachusetts to help readers understand the complexities of insurance shopping.
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Reviewed byMark Friedlander
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Mark FriedlanderSenior Director, Media Relations, Insurance Information Institute
Media relations director for Insurance Information Institute
20+ years in insurance and communications
Impartial, independent expert
As Senior Director, Media Relations, for Insurance Information Institute, Mark serves as the non-profit’s national spokesperson, sharing information and education on a wide array of insurance issues.
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Data reviewed byKonstantin Halachev
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Konstantin HalachevVP of Engineering & Data Science
7+ years experience in data analysis
Ph.D. in Computational Biology
Konstantin has led data teams across multiple industries, including insurance, travel, and biology. He’s led Insurify’s engineering team for more than three years.
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Table of contents
Gap insurance, or guaranteed asset protection, covers the “gap” between your car’s current value and your remaining vehicle loan or lease balance. Because cars lose value quickly due to depreciation, you could owe more on your car loan than your vehicle is worth, particularly if you’re in an accident shortly after acquiring the vehicle.
If your insurer declares your financed or leased vehicle a total loss and you don’t have gap coverage, you may still owe thousands to your lender after your auto insurance payout. You have to continue making loan payments for a vehicle you can no longer drive.
Gap insurance solves this deficit. This guide explains how the coverage works, what it costs, when you may want such protection, and the top companies offering gap coverage.
Quick Facts
Gap insurance typically costs between $2 and $20 per month through an auto insurer, or $400–$900 as a flat rate if purchased at a dealership.
Gap insurance can be especially helpful for drivers who made a small down payment, chose a long loan term, or rolled negative equity into a new car loan.
Gap insurance doesn’t cover repairs, your deductible, or missed payments — only the remaining loan or lease gap after a total loss.
What is gap insurance?
Gap insurance is optional coverage that helps pay the difference between your car’s actual cash value (ACV) and your outstanding loan or lease balance if the vehicle is totaled or stolen.[1]
When you file an insurance claim after an accident, your insurance company pays the vehicle’s ACV, essentially what your car was worth immediately before the loss. Because of depreciation, especially in the first year of owning a new car, this value can be significantly lower than what you still owe.
Full-coverage car insurance, including collision coverage and comprehensive coverage, pays for damage or theft up to your vehicle’s ACV. But those coverages don’t pay off your full loan if you owe more than the car is worth.
Gap insurance bridges that shortfall.
Here you can learn more about what gap insurance does and doesn’t cover.
Gap Insurance Covers  | Gap Insurance Doesn’t Cover |
|---|---|
| Loan balance shortfall after total loss | Repairs to damaged vehicle |
| Lease payoff gap | Your deductible |
| Theft-related payoff gap | Missed payments, late fees, or finance charges |
| Negative equity | Extended warranties or add-on products |
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How gap insurance works
Utilizing your gap insurance coverage follows a simple three-step process.
Your insurer pays your vehicle’s ACV.
Your lender or leasing company receives the payout.
Gap insurance pays the remaining loan balance, if any.
In the event of a total loss or theft, your personal auto policy pays up to the limits of your collision or comprehensive coverage. Because your car serves as collateral, the lender typically receives that payment rather than you.
If the ACV payout doesn’t cover your full car loan or lease payoff, your gap coverage pays the difference. You’ll usually file a claim with both your primary auto insurer and your gap provider in such instances.
It’s also important to note that gap insurance only applies when the vehicle is totaled or stolen, not when it’s repairable. It also may not cover finance charges, excess mileage fees, or missed payments.
Gap insurance in action
You finance a $40,000 car. One year later, it’s involved in an accident and is considered a total loss. Your insurer pays $30,000 (the car’s current ACV), but you still owe $35,000 on the loan. Gap insurance then steps in to cover the $5,000 difference, so you don’t pay out of pocket.
Is gap insurance worth it?
Gap insurance can be very valuable in the right situation, but it isn’t a necessary coverage for everyone. Gap insurance may be worth it for you if any of the following are true:
You owe more than your vehicle’s market value.
You put down less than 20% on your car loan.
You chose a loan term of 60 months or longer.
You rolled negative equity into your new loan.
You’re leasing your vehicle.
What gap insurance covers
Gap insurance coverage pays the difference between your remaining loan or lease balance and your vehicle’s ACV after a covered total loss.
Here are some scenarios in which gap insurance could come in to support you following a covered event:
Total loss from an accident: Covers the shortfall after a collision claim payout
Theft: Pays the difference in what you still owe if your stolen vehicle isn’t recovered
Lease payoff gap: Covers your remaining lease obligations after you receive your ACV payment
Remember, you must carry full coverage — collision and comprehensive — to buy gap insurance and gain these protections.
What gap insurance doesn’t cover
Gap insurance fills a very specific role and, as such, it doesn’t cover everything. Understanding what your gap insurance won’t cover can prevent unexpected surprises down the road. You should expect your gap coverage not to cover:
Repairs when your vehicle isn’t totaled
Your deductible amount
Medical bills or liability claims
Finance charges, late fees, or excess mileage
The down payment for your next car
Coverage beyond policy caps
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How much does gap insurance cost?
Gap insurance is relatively inexpensive when added to your auto policy — often around $2–$20 per month if you secure coverage through your auto insurer. Buying through a dealership typically costs more, ranging from $400 to $900 as a one-time fee rolled into your loan.
Here you can see how the cost of gap insurance and the number of expected payments varies based on where you secure coverage.[2] [3]
Purchase Source | Typical Cost Range | Paid Up Front or Monthly? |
|---|---|---|
| Auto insurer | $2–$20 per month | Monthly |
| Dealership | $400–$1,000 one-time charge | Up front or rolled into loan |
| Auto loan company | $400–$700 one-time charge | Up front or rolled into loan |
| Credit union | $575 one-time charge | One-time lump sum |
Who needs gap insurance?
Lenders or leasing companies sometimes require gap insurance, but even when it’s optional, the coverage can be valuable. This is especially true if you made a small down payment, chose a long-term vehicle loan, or financed a car that depreciates quickly.
The table below shows a series of situations where gap insurance may or may not make sense.
Situation | Needs Gap Insurance? |
|---|---|
| You put down less than 20% | Yes |
| You made a big downpayment (>20%) | No |
| Your loan term is 60 months or longer | Yes |
| You chose a short-term loan (36–48 months) | No |
| You’re leasing a vehicle | Yes |
| You have negative equity from rolling over a previous loan balance | Yes |
| You bought an older car that quickly depreciates (luxury or EV models, for example) | Yes |
| You paid mostly in cash | No |
| You rolled the time-of-purchase taxes and fees into a loan | Yes |
| Your loan balance is already lower than the car’s market value | No |
Where to buy gap insurance
You can buy gap insurance coverage through your auto insurance company, the dealership, or your lender. Comparing gap insurance quotes helps you avoid overpaying. Here you can learn more about each of these options.
Through your auto insurance company
Many insurers offer gap coverage as an add-on to an existing auto policy. This is often the most affordable option and allows you to bundle coverage in one place. Not all insurers offer gap insurance, so ask your agent before looking elsewhere for coverage.
Through the dealership
Dealerships frequently offer guaranteed asset protection at the time of purchase. It’s convenient but typically more expensive, and the cost is often rolled into your car loan — meaning you’ll pay interest on the charges.
Through your lender or credit union
Some lenders and credit unions offer gap insurance when you take out a car loan. Pricing may be lower than a dealership’s, but you’ll still want to compare it with your insurer’s quote.
Top auto insurance companies for gap insurance
Not every insurance company sells gap coverage. Here you can see how gap insurance offerings from many of the nation’s largest insurers compare.
Insurance Company | Offers Gap Insurance? | Add-On or Stand-Alone? | Good For |
|---|---|---|---|
| State Farm | Limited | Add-on | If the auto loan is through a State Farm-affiliated bank |
| Progressive | Yes | Add-on loan/lease payoff coverage | Good for flexible gap coverage and customizable payment plans |
| Allstate | Yes | Add-on endorsement | Gap with standard auto policies; good for mainstream drivers |
| Liberty Mutual | Yes | Add-on endorsement | New/better car replacement options and broad agent support |
Pros and cons of gap insurance
If you’re still trying to decide if gap insurance is right for you, here are some pros and cons to consider.
Pros
Protects you from paying the loan balance after your vehicle is deemed a total loss
Affordable when purchased through an insurer
No deductible for gap coverage
Coverage is no longer needed once your loan falls below the car’s estimated value
Cons
Adds cost to your auto insurance
Applies only to a total loss
Doesn’t cover your standard car insurance deductible or late fees
May be unnecessary if you made a large down payment
Gap insurance FAQs
Gap insurance can be confusing, especially for first-time buyers. If you still have questions, the following answers can help.
How long after buying a car can you get gap insurance?
Many insurers allow you to add gap coverage shortly after purchasing or refinancing your vehicle, often within the first year, though eligibility rules vary by company.
Can you buy gap insurance for a used car?
Yes, you can buy gap insurance for a used car if you’re financing it. It’s most useful when your loan balance exceeds the car’s current market value.
What doesn’t gap insurance cover?
Gap insurance doesn’t cover repairs, your car insurance deductible, missed payments, or extended warranties. It only covers the remaining loan or lease gap after a total loss payout.
What’s the maximum gap insurance will pay?
Most policies cap payouts at a percentage of the vehicle’s ACV or a specific dollar amount. Check your policy for limits before buying coverage.
Can you cancel gap insurance?
Yes, you can usually cancel gap insurance, and you may receive a prorated refund if you paid up front and no longer need coverage.
Does gap insurance cover your deductible?
Typically, no. Gap insurance usually doesn’t reimburse your collision or comprehensive deductible unless specifically stated in the policy.
Is gap insurance required?
It’s usually optional, but some lenders or leasing companies require gap insurance as a condition of financing or leasing a vehicle.
Do you need gap insurance if you put 20% down?
If you made a down payment of 20% or more and have a short loan term, you may not need gap insurance because you’re less likely to owe more than the car’s value.
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Sources
- Consumer Finance Protection Bureau. "Gap Insurance."
- Hotaling Insurance Services. "Gap Insurance."
- Mypfcu.org. "Gap Coverage."
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Doug BaileySenior Content Writer
Doug Bailey is a senior content writer at Insurify. Doug is an experienced business writer having worked more than a decade as a reporter and business editor at the Boston Globe, covering financial services and the insurance industry. Most recently, Doug was a regular contributor to InsuranceNewsNet, a news and information service for the insurance and financial industry.
Doug is a native New Englander hailing from Maine and works in Insurify’s Cambridge office.
Katie PowersLicensed P&C Agent, Senior Insurance Editor
Licensed auto and home insurance agent
4+ years experience in insurance and personal finance editing
NPN: 20564519
Katie uses her knowledge and expertise as a licensed property and casualty agent in Massachusetts to help readers understand the complexities of insurance shopping.
Featured in
Mark FriedlanderSenior Director, Media Relations, Insurance Information Institute
Media relations director for Insurance Information Institute
20+ years in insurance and communications
Impartial, independent expert
As Senior Director, Media Relations, for Insurance Information Institute, Mark serves as the non-profit’s national spokesperson, sharing information and education on a wide array of insurance issues.
Konstantin HalachevVP of Engineering & Data Science
7+ years experience in data analysis
Ph.D. in Computational Biology
Konstantin has led data teams across multiple industries, including insurance, travel, and biology. He’s led Insurify’s engineering team for more than three years.