When your used car is totaled, gap insurance is a total lifesaver.
A pushy salesperson in the finance office might say otherwise, but you can buy gap insurance outside the dealership. Even with full coverage on your used car, you could still be at significant financial risk without gap insurance.
In as little as two minutes, Insurify can help you find the gap and car insurance protection you need at a price you can afford.
Gap Insurance for Used Cars: The Basics
“Gap” stands for “guaranteed asset protection.” Gap insurance protects you if your car’s lost or stolen by paying the difference between how much you owe on your loan and your vehicle’s actual cash value (ACV). It takes care of the “gap” between payout from your comprehensive or collision insurance from your auto policy and what’s still owed to the bank.
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Unlike liability coverage, the law does not mandate gap insurance. Gap insurance is an optional add-on car insurance coverage. Gap insurance is part of your car insurance policy and pays out regardless of fault.
Do I Need Gap Insurance?
For used cars, the depreciation hit is less than that of new vehicles, but depending on the terms of your loan, you may still take a substantial risk. You should think about gap insurance if you have:
- A down payment less than 20 percent, including no down payment
- A high-value or luxury vehicle because they can depreciate faster than average
- A leased vehicle
- A loan term of 60 months or longer
- A loan that requires it
- A loan with high interest
- A loan with negative equity rolled in from a previous car
- A new or late-model used vehicle where you owe more than it’s worth
You no longer need gap insurance coverage when the value of your vehicle exceeds the amount that you owe on your car loan balance. Check Kelley Blue Book when you renew your insurance policy to see about dropping gap insurance.
How Does Gap Insurance Work?
Imagine you bought a used car for $20,000, and after your first year of payments, you have a remaining loan amount of $17,500. In the event of a total loss, your car’s actual cash value might be $15,000. You pay a $1,000 deductible, and the insurance company pays $14,000 because you have comprehensive coverage and collision coverage. This amount covers part of the loan balance, but you still owe $2,500, and that’s what your gap insurance pays
Gap insurance covers:
- Negative equity (or being upside down)
Gap insurance does not cover:
- Bodily injury
- Damage to a non-totaled vehicle
- Engine failure
Dealerships lease used cars that are certified pre-owned (CPO) vehicles. They typically have fewer than 48,000 miles and are less than four years old. Leasing options are like that of new cars, so gap insurance is available.
Gap Insurance for a Used Car: How to Negotiate
The best negotiation tactics happen before you go to the dealership. It’s wise to pick up the phone and see what options are available. You should:
- Know what vehicle you want, including year, make, and model.
- Ask them what gap insurance products they sell.
- Haggle them into revealing “dealer cost,” or the price where they make zero profit on the product.
- Even if you’re a stellar negotiator, the salesperson probably won’t reveal the actual cost. If you get the number, the price will likely still be more expensive than what you’d pay from a car insurance company or third-party gap insurance provider.
That said, you can use the same four-step process to reduce the cost of other finance products like alarms, extended warranties, and window tint.
How much does gap insurance for used cars cost?
You can pay as low as a $5 added monthly payment, or $60 per year, for gap insurance on a standard car insurance policy. Compare that to the $500–$700 a dealership can charge, according to Fox Business. Third-party gap insurance providers market policies between $200 and $300.
The joint cost of gap insurance and car insurance was cheapest in New Hampshire, at $122, and most expensive in Michigan, at $495 per month. Your price will vary based on your state, vehicle, and driver profile.
Car buyers usually get the best deal when they buy car and gap insurance from the same company. If you feel you overpaid with a third-party provider or dealership, it’s not too late to fix things. You may be able to cancel your gap insurance and get new coverage with your car insurance company. Before canceling, make sure the insurance provider offers gap insurance.
Gap Insurance for Your Used Car: Best Car Insurance Companies
The top three companies also make the list for the top 10 car insurance companies in America, according to the Insurance Information Institute. After over 25 million quotes, the three companies were ranked based on nationwide availability and relative pricing in the most populous states.
Progressive was the third-largest car insurance company in 2020. It offers gap insurance and labels it as “loan/lease payoff.” It covers up to 25 percent of the actual cash value of your car.
Here are some discounts Progressive offers to used car buyers:
- Good credit discount
- Multiple vehicle discount
- Good driver discount
- Passive restraint discount
- Multiple policy discount
Travelers was the 10th-largest insurance company in the nation. It labels its product “loan/lease gap insurance.” Travelers is one of the oldest insurance companies in the world and has served customers since 1853.
Here are some discounts Travelers offer to used car buyers:
- Safe driver discount
- Continuous coverage discount
- Good payer discount
- Multiple policy discount
- Defensive driver discount
Safeco is a less familiar name than its parent company Liberty Mutual. Liberty Mutual was the sixth-largest insurance company in the United States. Look for “gap coverage” if you buy this product from Safeco.
Here are some discounts Safeco offers to used car buyers:
- Good credit discount
- Multiple vehicle discount
- Low mileage discount
- Good driver discount
- Anti-theft device discount
Where can I buy gap insurance for my used car?
You can buy gap insurance for used cars from car insurance companies, car dealerships, and third-party gap insurance providers. Generally, car insurance companies are the cheapest, and car dealerships are the most expensive.
When picking between the three, ask:
- Can you cancel? Find out the cancellation and refund policies before you agree because you only need gap insurance while you owe more than the value of the car.
- Does the gap insurance cover the deductible? Rarely, you’ll find an auto insurer like Allstate that pays the deductible, too, but most don’t.
- How much does it cost? You must decide on the vehicle and possibly get the VIN so that you can compare apples to apples.
- Is the company reputable? If you’re thinking about a third-party provider or dealership, it’s wise to check online reviews and BBB ratings.
Car Insurance Companies
Many car insurance companies offer gap insurance as part of your policy. Rates vary based on your driving history and personal profile, but you should be able to find a competitive price if you check enough companies. A quote-comparison tool such as Insurify can streamline the process and help you find car insurance in just a few minutes.
Third-Party Gap Insurance Providers
You can buy a stand-alone gap insurance policy from a gap insurance provider. When you file a claim, you’ll need to contact the third-party provider and your insurer. For some, that’s too much of a hassle. But these companies can provide value if the dealership is too expensive and the auto insurer you selected doesn’t offer gap insurance.
Gap insurance is a finance product and is not required before you leave the dealership. A lender may indeed require gap insurance, but that doesn’t mean that you must buy from the dealership.
Dealerships often have the most expensive gap insurance. They can also cause you to pay interest on the insurance if they roll gap insurance into your auto loan payments.
Save on Gap Insurance for Used Cars with Insurify
Bridge the gap without ending up underwater.
Is gap insurance worth it? Yes, it is when you avoid a considerable out-of-pocket expense. A little knowledge and negotiation can result in significant savings.
While you’re saving on gap insurance, you can lock in a good deal on car insurance, too. Insurify can help you compare 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.
Used car buyers get fast, free, and finance-friendly quotes at Insurify today!
Gap Insurance for Used Cars: Quick Questions
How can I buy gap insurance for my used car?
You can buy gap insurance by purchasing coverage from a car insurance company, third-party gap insurance provider, or car dealership. Typically, car insurance companies are the cheapest, and car dealerships are the most expensive.
Can the dealership require me to buy gap insurance for my used car?
A high-pressure salesperson in the finance office may tell you that gap insurance is needed to drive off the lot. This could be true if your lender requires it, but it doesn't mean that you must buy coverage from the dealership. You have the option to get gap insurance from a third-party company or your car insurer.
What states require gap insurance for my used car?
No states require gap insurance for used cars. However, your lender may require it as part of your loan. If your lender requires it, you can buy coverage from a third-party gap insurance provider or your car insurance company, not just the dealership. Many car buyers are pressured into buying at the dealership, but consumers have other options.
How can I find the cheapest car insurance plan for my used car?
While getting the best deal on gap insurance, why not do the same for your auto insurance policy? You should check a website that collects quotes from the auto insurance companies available in your area. A quote-comparison tool like Insurify provides the cheapest car insurance quotes from local companies in just a few minutes.