What Is Gap Insurance for Cars, and Do You Need It?

Gap insurance kicks in if you total your car or someone steals it — covering the difference between your insurance payout and what’s left on your loan or lease.

Sarah Archambault
Sarah Archambault
  • Experienced personal finance writer

  • Background working with banks and insurance companies

Sarah enjoys helping people find smarter ways to spend their money. She covers auto financing, banking, credit cards, credit health, insurance, and personal loans.

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Ashley Cox
Edited byAshley Cox
Headshot of Managing Editor Ashley Cox
Ashley CoxSenior Managing Editor
  • 7+ years in content creation and management

  • 5+ years in insurance and personal finance content

Ashley is a seasoned personal finance editor who’s produced a variety of digital content, including insurance, credit cards, mortgages, and consumer lending products.

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Updated October 13, 2024

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Gap insurance, or guaranteed asset protection, is a type of optional coverage that helps cover the cost of paying off your loan or lease if you total your car or someone steals it. Most insurers only pay out your car’s depreciated value, which isn’t always enough to cover a loan payoff. Without gap insurance, you’ll be on the hook to cover any differences out of pocket. 

You can buy gap coverage from your lender, a dealership, or through your insurance company. If you add it to your policy, you may have a small increase in your rate. For example, the national average cost of a full-coverage policy is $211 per month. Adding gap coverage typically costs an additional $20 per year.​​[1] Shopping around can help you find the best rate. 

Here’s a closer look at gap insurance and how it works.

What gap insurance covers

If you total your car in an accident or someone steals it, a standard insurance policy only covers the car’s actual cash value after any deductible. Gap insurance, on the other hand, covers the difference between what your insurer pays and what you owe on the car.

But gap insurance doesn’t cover additional charges, such as excessive lease miles or finance charges on a loan. Gap insurance also doesn’t cover property, personal injuries, or any issues with the car unrelated to an accident or theft.

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How long gap insurance lasts

Gap insurance lasts for the entirety of your policy. But you can cancel it once your loan balance is less than the car’s value. Most people need gap insurance for the first couple of years they own or lease a vehicle but then remove the coverage from their policy to lower their premiums.

How much gap insurance costs

The cost of gap insurance depends on where you buy coverage. You can buy a policy from your auto loan company or existing car insurance company. Although not common, you may also be able to buy stand-alone gap coverage.

Here are estimated costs from various gap insurance sources:

  • Auto loan company: Purchasing gap coverage from a lender typically costs $500–$700. Sometimes, your auto lender may offer gap insurance as “loan forgiveness” coverage.

  • Your current auto insurer: Gap insurance costs around $20 per year for coverage when buying a policy for a new car.

  • Stand-alone policy: If your insurer doesn’t offer gap coverage, you may be able to buy a separate policy for a one-time fee. Coverage usually costs around $200–$300.

When you may need to buy gap insurance

No states legally require gap insurance, and not everyone needs to purchase it. But you may decide you want the additional coverage. Certain situations that warrant considering gap insurance include the examples below.

If you have a car loan

Lenders may require that you have gap insurance if you take out a long-term car loan of five years or longer, according to the Insurance Information Institute. When you have a longer-term loan, you pay more interest up front, which means you have a higher risk of owing more than the car’s value.

In addition, gap insurance ensures that you’ll be able to pay back your loan if you total your vehicle or someone steals it.

If you lease your car

Leasing companies typically require gap insurance to protect their investment in the car. The company leasing your vehicle often builds gap insurance into the leasing agreement or as part of the contract.

Monthly payments for a leased vehicle tend to be lower than typical auto loan payments, which increases the gap between the vehicle’s actual value and the amount you still owe. Gap insurance protects you, and the company you leased your car from, in the event of total loss. 

If you have a high-value vehicle that depreciates quickly

Luxury vehicles depreciate faster than regular vehicles, which may lead you to be upside-down on your loan almost as soon as you drive it off the lot. Unless you make a sizable down payment on the car, your lender might require gap coverage to protect the loan collateral.

If you drive a lot

If you drive more than average — more than 14,000 miles per year — your car will depreciate faster than average. This can leave you upside-down on your loan much faster and longer, making gap insurance worth it.[2]

When You Don’t Need to Buy Gap Insurance

You don’t need gap insurance if you own your vehicle outright. Since you don’t have a car loan to pay off, there’s no gap for the car insurance policy to cover.

Where to buy gap insurance

You can purchase gap insurance from almost any auto insurance company, car dealer, or lender. But purchasing gap coverage from your auto insurer is typically more cost-effective than buying it from a car dealership.

Most car insurance companies offer gap insurance, but here are five known for providing the best quality gap insurance:

Travelers

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User Reviews
3.4
IQ Score
The Insurify Quality (IQ) Score uses more than 15 criteria to objectively rate insurance companies on a one-to-ten scale. The Insurify editorial team researches insurer data to determine the final scores.
9.0/10
Liability Only
Liability-only insurance, sometimes called minimum-coverage insurance, pays for bodily injury and property damage to others in an accident the policyholder causes. It does not pay for the insured’s own damages.
$89/mo
Full Coverage
Full-coverage car insurance generally includes liability, collision, and comprehensive coverage, and may include other optional coverages such as uninsured motorist coverage. Collision covers a policyholder’s repair or replacement costs in case of an accident. Comprehensive covers damages caused by non-accident events. The average quote displayed here reflects policies with the following coverage limits: $50,000 bodily injury liability per person; $100,000 bodily injury liability per accident; $50,00 property damage liability per accident; $1,000 collision deductible; and a $1,000 comprehensive deductible.
$194/mo

Travelers offers loan/lease gap coverage for original owners of a financed or leased vehicle who purchased the car from a new car dealer.

Pros
  • Accident forgiveness available

  • Robust coverage selections and discount offerings

Cons
  • Rideshare coverage only available in Colorado and Illinois

  • High number of negative customer reviews with the Better Business Bureau

Read more driver reviews of Travelers
Melissa - October 10, 2024
Verified

Great Customer Service but High Rates

The rates are too high.

Joseph - October 10, 2024
Verified

Car Insurance

The rates are the lowest compared to other major insurance companies.

Andrew - October 7, 2024
Verified

Constant Rate Increases

The rates are constantly increasing.

Nationwide

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User Reviews
3.3
IQ Score
The Insurify Quality (IQ) Score uses more than 15 criteria to objectively rate insurance companies on a one-to-ten scale. The Insurify editorial team researches insurer data to determine the final scores.
8.7/10
Liability Only
Liability-only insurance, sometimes called minimum-coverage insurance, pays for bodily injury and property damage to others in an accident the policyholder causes. It does not pay for the insured’s own damages.
$84/mo
Full Coverage
Full-coverage car insurance generally includes liability, collision, and comprehensive coverage, and may include other optional coverages such as uninsured motorist coverage. Collision covers a policyholder’s repair or replacement costs in case of an accident. Comprehensive covers damages caused by non-accident events. The average quote displayed here reflects policies with the following coverage limits: $50,000 bodily injury liability per person; $100,000 bodily injury liability per accident; $50,00 property damage liability per accident; $1,000 collision deductible; and a $1,000 comprehensive deductible.
$185/mo

Nationwide allows customers to purchase gap coverage as an add-on to a new or existing full-coverage policy.

Pros
  • Numerous discount and savings opportunities

  • SmartRide (for safe drivers) and SmartMiles (for low-mileage drivers)

Cons
  • Not available in every state

  • Some discounts and programs not available in all states

Read more driver reviews of Nationwide
Frank - October 13, 2024
Verified

Nationwide Leaving NJ

Everything was great until they decided to leave New Jersey. There was no explanation, just a notice.

Dennis - October 12, 2024
Verified

Nationwide's Unexpected Rate Increase

Nationwide raised my rates by 33% for no apparent reason on my part, other than what seems to be corporate greed.

Orlando - October 8, 2024
Verified

Great Insurance

Great rates.

Progressive

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JD Power
J.D. Power data measures overall customer satisfaction and claims satisfaction based on a 1,000-point scale.
819
IQ Score
The Insurify Quality (IQ) Score uses more than 15 criteria to objectively rate insurance companies on a one-to-ten scale. The Insurify editorial team researches insurer data to determine the final scores.
8.4/10
Liability Only
Liability-only insurance, sometimes called minimum-coverage insurance, pays for bodily injury and property damage to others in an accident the policyholder causes. It does not pay for the insured’s own damages.
$79/mo
Full Coverage
Full-coverage car insurance generally includes liability, collision, and comprehensive coverage, and may include other optional coverages such as uninsured motorist coverage. Collision covers a policyholder’s repair or replacement costs in case of an accident. Comprehensive covers damages caused by non-accident events. The average quote displayed here reflects policies with the following coverage limits: $50,000 bodily injury liability per person; $100,000 bodily injury liability per accident; $50,00 property damage liability per accident; $1,000 collision deductible; and a $1,000 comprehensive deductible.
$138/mo

Progressive offers loan/lease payoff coverage, which is similar to gap coverage. But the company limits payouts to 25% of the vehicle’s value in most states, so calculate your car’s gap coverage needs first.

Pros
  • Rewards for good drivers

  • Numerous coverage options and discounts available

Cons
  • Higher-than-expected amount of complaints

  • Ranked 11 out of 15 companies in the J.D. Power Customer Satisfaction Index Ranking

Read more driver reviews of Progressive
Carolyn - October 13, 2024
Verified

Extremely High Cost

The prices are very high and car rental is not included.

Albert - October 13, 2024
Verified

Nothing impressive!

The premiums are too high!

Miguel - October 13, 2024
Verified

Poor

It's a very expensive insurance and covers very little.

Allstate

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User Reviews
3.1
IQ Score
The Insurify Quality (IQ) Score uses more than 15 criteria to objectively rate insurance companies on a one-to-ten scale. The Insurify editorial team researches insurer data to determine the final scores.
8.9/10
Liability Only
Liability-only insurance, sometimes called minimum-coverage insurance, pays for bodily injury and property damage to others in an accident the policyholder causes. It does not pay for the insured’s own damages.
$62/mo
Full Coverage
Full-coverage car insurance generally includes liability, collision, and comprehensive coverage, and may include other optional coverages such as uninsured motorist coverage. Collision covers a policyholder’s repair or replacement costs in case of an accident. Comprehensive covers damages caused by non-accident events. The average quote displayed here reflects policies with the following coverage limits: $50,000 bodily injury liability per person; $100,000 bodily injury liability per accident; $50,00 property damage liability per accident; $1,000 collision deductible; and a $1,000 comprehensive deductible.
$137/mo

Allstate is another good option for gap coverage, but you can’t add it to a vehicle you already own. Allstate only offers gap insurance when added to a finance agreement when you purchase a vehicle. You can use Allstate’s gap coverage to pay your deductible, too — up to $1,000.

Pros
  • Well-established with superior ratings from A.M. Best

  • Pay-per-mile option available

Cons
  • Low customer satisfaction

  • Rates are merely average compared to other insurers

Read more driver reviews of Allstate
Don - October 13, 2024
Verified

Everything is good, but it's more expensive than other insurance companies I got quotes from online.

Everything is good, but it's more expensive than other insurance companies I got quotes from online.

Carolyn - October 13, 2024
Verified

Average

It's okay, but the rates are too high. I will be looking for a cheaper price.

Milton - October 12, 2024
Verified

Why I am leaving

Good company but prices are too high.

The Hartford

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User Reviews
3.5
IQ Score
The Insurify Quality (IQ) Score uses more than 15 criteria to objectively rate insurance companies on a one-to-ten scale. The Insurify editorial team researches insurer data to determine the final scores.
8.4/10
Liability Only
Liability-only insurance, sometimes called minimum-coverage insurance, pays for bodily injury and property damage to others in an accident the policyholder causes. It does not pay for the insured’s own damages.
$98/mo
Full Coverage
Full-coverage car insurance generally includes liability, collision, and comprehensive coverage, and may include other optional coverages such as uninsured motorist coverage. Collision covers a policyholder’s repair or replacement costs in case of an accident. Comprehensive covers damages caused by non-accident events. The average quote displayed here reflects policies with the following coverage limits: $50,000 bodily injury liability per person; $100,000 bodily injury liability per accident; $50,00 property damage liability per accident; $1,000 collision deductible; and a $1,000 comprehensive deductible.
$174/mo

The Hartford can be a good option if you buy gap insurance within the first 30 days of buying the car. It offers affordable coverage and even further discounts for AARP members.

Pros
  • Savings for AARP members

  • Above-average customer satisfaction

Cons
  • Only available for AARP members

  • No accident forgiveness coverage

Read more driver reviews of The Hartford
Mel - October 13, 2024
Verified

After 22 years, they switched me to a new customer because they no longer deal with the place where I got my insurance. In one year, my rate tripled. As I checked around, everyone else was approximately $1000 or more less than the company I've been with for over 20 years. When I spoke to them, they simply said they could help me cancel or drop coverage. The Hartford doesn't seem to care.

After 22 years, they switched me to a new customer because they no longer deal with the place where I got my insurance. In one year, my rate tripled. As I checked around, everyone else was approximately $1000 or more less than the company I've been with for over 20 years. When I spoke to them, they simply said they could help me cancel or drop coverage. The Hartford doesn't seem to care.

Roger - October 12, 2024
Verified

Insurance Heist

Like all other insurance companies, they start with low rates but increase your monthly cost with every renewal.

Gerald - October 11, 2024
Verified

Hartford Raises Rates

Beware of rate increases.

Gap insurance alternatives

A few alternatives to gap coverage exist and may make more sense depending on your insurance needs.

  • New car replacement coverage gives you money for a brand-new car of the same make and model, minus your deductible. But only cars of a certain age or mileage qualify.

  • Better car replacement coverage gives you enough money to purchase a car that’s one year newer and has at least 15,000 fewer miles than your current vehicle.

  • Loan/lease payoff coverage typically pays up to 25% beyond your vehicle’s actual cash value (ACV) if someone steals your car or you total it in an accident. The vehicle must be considered a total loss.

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How to save money on car insurance

The cost of gap insurance is typically minimal, so adding it to your insurance policy won’t affect your rate by much. But using strategies to save on your premiums is always a good idea. Here are a few ways to find cheap auto insurance:[3]

  • illustration card https://a.storyblok.com/f/162273/x/fa11c1fe75/comparison-website.svg

    Compare car insurance quotes

    Get multiple quotes online and compare your options. Look at the premiums, deductibles, and overall coverage.

  • illustration card https://a.storyblok.com/f/162273/150x150/42a396bd18/credit-and-loan-96x96-green_033-discount.svg

    Increase your deductible

    The more responsibility you take for the cost of an accident or stolen vehicle, the lower your premiums will be. Don’t take on a deductible you can’t afford, but the higher your deductible, the less you’ll pay.

  • illustration card https://a.storyblok.com/f/162273/150x150/834da573df/car-and-driving-96x96-orange_023-driving-test.svg

    Practice safe driving

    Insurance premiums often stem from assessed risk levels. Drivers with a clean record pay less than drivers with a history of tickets and accidents.

  • illustration card https://a.storyblok.com/f/162273/150x150/3b97fae014/money-96x96-blue_033-magnifying-glass.svg

    Look for discounts

    Every insurance company offers different discounts that provide ways to save on insurance. See what discounts you qualify for, such as bundling your car and homeowners insurance, taking a defensive driver course, or paying your annual or six-month premium in full.

  • illustration card https://a.storyblok.com/f/162273/150x150/e80d4ae197/car-and-driving-96x96-gold_019-car.svg

    Drive an affordable vehicle

    Some cars are more expensive to insure because they cost more to repair or have higher rates of accidents or being stolen. Do your research, and drive a car that insurance companies don’t consider high-risk.

  • illustration card https://a.storyblok.com/f/162273/150x150/95fa30ac35/insurify-icons-auto-orange-96x96_005-insurance.svg

    Adjust your coverage levels

    Don’t simply take car insurance at face value. Instead, decide what types and levels of coverage you need. For example, if you drive an older car, you may choose not to carry comprehensive and collision coverage.

Gap insurance for cars FAQs

Gap insurance coverage isn’t always necessary. But if you’re still paying off your car or have a lease, your lender may require it. Gap insurance helps pay off your remaining loan balance in the event of a total loss, even if you have negative equity on a new vehicle. You may find this additional information helpful as you consider gap coverage.

  • What is gap insurance?

    Gap insurance bridges the gap between your outstanding loan or lease balance and your car’s current value. It only covers you if you total your car or someone steals it, helping you pay off your car loan or lease when you no longer have a car.

    Gap coverage typically only adds about $20 per year to your annual premium when purchased as an add-on to your existing policy, according to the Insurance Information Institute.

  • If you have full-coverage insurance, do you still need gap insurance?

    Full-coverage insurance doesn’t include gap insurance. If you total your car in an accident or someone steals it, full-coverage insurance only pays the actual cash value of your car. If you owe more than the car’s current value, you’d be on the hook to pay off the loan balance. Gap insurance closes that gap to help you pay off your car loan.

  • Can you buy gap insurance after you buy a car?

    Some insurance companies allow you to purchase gap insurance after you buy a car, but you may have a limited window of time to do so. It’s best to decide if you need gap insurance when you buy the car or shortly afterward.

  • Is gap insurance worth it?

    Gap insurance can be worth it if you buy a car that depreciates quickly, make a small down payment, or lease a car. If paying off a loan on a car you can no longer drive would strain your finances, the cost of gap insurance might provide peace of mind.

Sources

  1. Insurance Information Institute. "What is gap insurance?."
  2. Kelley Blue Book. "Average Miles Driven Per Year: Why It Is Important."
  3. Insurance Information Institute (III). "How to save money on car insurance."
Sarah Archambault
Sarah Archambault

Sarah Archambault enjoys helping people figure out how to manage their finances and credit. She covers auto financing, banking, credit cards, credit health, insurance, and personal loans. Her work has been featured on Credit Karma, Experian, LendingClub, Sound Dollar and USA Today Blueprint. She also writes for national insurers, banks and financial institutions like Aetna, MassMutual, Stripe, and UnitedHealthcare. 

Ashley Cox
Edited byAshley CoxSenior Managing Editor
Headshot of Managing Editor Ashley Cox
Ashley CoxSenior Managing Editor
  • 7+ years in content creation and management

  • 5+ years in insurance and personal finance content

Ashley is a seasoned personal finance editor who’s produced a variety of digital content, including insurance, credit cards, mortgages, and consumer lending products.

Featured in

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