That shiny new car you have your eye on will lose value the moment you drive it off the lot. And car insurance companies only cover the car’s actual cash value at the time of the claim. That means that if you were to crash your car on your first day of driving, your insurance payout could be less than what you owe on your car loan. If that would cause financial hardship, you may want to consider the gap insurance. And if you lease your vehicle, you may be required to add it.
The good news is, it’s typically not expensive to add gap coverage to a car insurance policy. It’s more important to find an affordable base policy from a carrier that offers gap coverage. You can use Insurify to compare customized car insurance quotes from major national and smaller local carriers alike so you can find the best deal for collision and comprehensive coverage. If you pick an insurer that offers gap coverage, you’ll be able to add the protection at a low cost.
How much does gap insurance cost?
According to the Insurance Information Institute, you can get gap insurance for as little as $20 per year. But your individual cost will depend on many factors, including your age, location, driving record, and the make and model of your vehicle. Progressive says its customers pay an average of $5 per month, or $60 per year, for its gap insurance product.
Most major insurers will price your gap coverage according to what you pay for comprehensive and collision coverage. You can expect to pay about 5–6 percent of what you would pay for those coverages to get gap insurance. So if you pay $500 per year for collision and comprehensive coverage, you might be charged $25 extra each year for gap insurance coverage.
Adding gap insurance to your car insurance policy is the cheapest way to get coverage. If you buy it from the dealer or your lender, it will be much more costly. If you’re happy with your insurance company but it doesn’t offer gap coverage, you can also purchase a stand-alone gap insurance policy from a third-party gap insurance provider.
Cost of Gap Insurance: State by State
Average monthly premiums for car insurance vary by state, and so do gap insurance rates. Below you’ll find the average monthly premium that leased drivers pay in your state.
Because leased car drivers typically own gap insurance, the average monthly car insurance premium figures on the chart below will give you a good idea of what you may pay for your overall insurance costs with gap insurance coverage in your state. We’ve also identified the cheapest provider offering gap insurance in each state.
|State||Average Monthly Premium for Leased Car Drivers||Cheapest Insurance Company for Leased Car Drivers|
The Cheapest Car Insurance Companies for Gap Insurance
The best gap insurance companies also provide affordable premiums on other types of auto insurance coverage. They’re also reputable in terms of financial strength and customer satisfaction. Here are a few of the cheapest auto insurance companies that offer gap coverage as an add-on:
Travelers offers loan/lease gap insurance that you can add to your auto insurance policy, and the average premiums for liability, comprehensive, and collision insurance are lower than at other carriers. For example, in Florida, Travelers customers pay $249 per month on average, which is much lower than the state average.
Travelers also offers a new car discount of up to 10 percent that might appeal to drivers purchasing gap insurance, in addition to the standard payment discounts and multi-policy discounts. The auto insurer has an A++ (Superior) financial strength rating from A.M. Best, but it ranked below-average in J.D. Power’s 2020 U.S. Auto Claims Satisfaction Study.
In some states, Midvale is able to offer the cheapest premiums for full coverage auto insurance. For example, in New Hampshire, Midvale customers pay an average of just $93 per month for car insurance. Midvale also offers multi-car and multi-policy discounts along with student and payment discounts. Midvale has an A (Excellent) financial strength rating from A.M. Best but was not rated in J.D. Power’s 2020 U.S. Auto Claims Satisfaction Study.
In many states, Nationwide is able to offer liability, collision, and comprehensive insurance at affordable rates. For example, in New Mexico, Nationwide customers pay an average of $142 per month for car insurance, putting the company neck and neck with Travelers. New car drivers may also find it helpful to add a total loss deductible waiver to their policy.
Nationwide has some unique discounts as well, including programs for both safe driving and low mileage, in addition to standard multi-policy, good student, defensive driving, and payment discounts. The company has an A+ (Superior) financial strength rating from A.M. Best and was ranked above-average in J.D. Power’s 2020 U.S. Auto Claims Satisfaction Study.
What is gap insurance?
Gap insurance, or guaranteed asset protection coverage, is designed to protect new vehicle owners who make a small down payment or have a loan term longer than five years. That’s because a new car depreciates quickly over the first year, so the value of the car may be less than what you owe the lender. If that’s the case, you’ll have negative equity in the vehicle.
If your car were to be stolen or declared a total loss, you would owe more in loan payments than the vehicle’s actual cash value (ACV). Your insurance payout wouldn’t be enough to pay off the loan balance, and you’d be on the hook for the difference.
For example, let’s say you buy a $30,000 car with a loan amount of $28,000. CARFAX data shows that new cars depreciate more than 10 percent in the first month. If you were to crash your car during that time, you would still owe $28,000 for your loan/lease payoff, but your insurance company would only pay you the current value of your car, which would be $27,000 or less. You’d have to pay your lender or leasing company $1,000 out of pocket.
Gap insurance covers the difference between your loan amount and the Kelley Blue Book value of your car. In this case, your insurance company would pay your lender $1,000 directly, minus your deductible.
Gap Insurance and Leasing a Car
Gap insurance may be included in your lease agreement without an extra charge, or you may be required to purchase it. It will cover your early termination liability if your car is totaled or stolen.
For example, let’s say you paid a $2,000 capitalized cost reduction at the onset of the lease. Then, your car is totaled when the lease payoff for your vehicle is $20,000, but the insured value of your vehicle is only $18,000. If you had gap insurance and a $500 deductible, your insurance company would pay the leasing company $19,500. If you didn’t have gap insurance, your insurance company would only pay $18,000, and you’d have to cover the difference.
Do I need to buy gap insurance?
While state law doesn’t require gap insurance, new car owners should consider purchasing gap coverage if:
- The down payment amount was less than 20 percent
- The loan term is longer than five years
Gap coverage also may be required as a condition of your auto loan or lease agreement. Often, you’ll only be able to purchase gap insurance if the model year of the vehicle is one or two years old, and some insurance companies have additional requirements.
Keep in mind that you’ll only need gap insurance until your loan balance shrinks to less than your car’s value. At that time, remember to cancel your coverage.
Buying Gap Insurance Through a Dealership
While you can buy gap insurance from your car dealer, it will cost you. Gap insurance typically costs about three times more when purchased through a car dealership. Usually, a dealership will charge a lump sum rather than a monthly premium for gap coverage, and the cost is baked into your financing terms. That makes it difficult to cancel the coverage if you need to.
Buying Gap Insurance Through a Third-Party Gap Insurance Provider
Your cheapest option will be to get gap coverage as an add-on to an existing policy. However, if this isn’t an option for you, you can also purchase a stand-alone gap policy from a third-party insurer. In most cases, this will cost less than getting gap coverage through the dealership.
Compare Car Insurance Plans with Insurify
Gap insurance is relatively cheap to add to your insurance policy. The real savings come when you’re able to find an insurance company that can offer you cheap premiums. And the easiest way to find the cheapest rate for you is to use Insurify to compare auto insurance policies and premiums side by side. Insurify users save $585 on average just from switching providers.
With Insurify, you’ll only need to enter your information once, and our artificial intelligence technology will do the rest of the work. You’ll be able to see customized quotes from up to 20 different insurers in one spot so you can adequately assess which insurance plan is right for you.
How Gap Insurance Works: Quick Questions
What is the cheapest state for gap insurance?
The cost of gap insurance is often directly related to the cost of comprehensive and collision coverage. According to Insurify data, the cheapest state for full coverage auto insurance is New Hampshire, with leased drivers paying an average monthly premium of just $122.
Do all states require gap insurance?
Gap insurance isn’t required under any state laws. However, if you have an auto loan or lease agreement, you may be required to carry gap insurance as a condition of your contract.
What is the average cost of gap insurance?
Estimates vary, but the Insurance Information Institute reports that gap insurance can cost as little as $20. Progressive claims that its policyholders pay an average of $5 per month for gap coverage.
How can I find the cheapest car insurance policy?
The easiest way to find the cheapest car insurance policy is to use an online comparison tool like Insurify. You’ll just need to answer a few questions about your vehicle and driving record to get started. From there, you can compare quotes from several different providers in one place.