Gap Insurance: Down Payment Refund?

Gap insurance, or guaranteed asset protection, is an optional form of insurance that covers the difference between the amount owed on a car loan or lease and the car's market value in the event of theft or a total loss. In other words, it covers the gap between the amount paid out by standard insurance and the amount still owed on a loan or lease. This type of insurance is particularly useful for those who have made a small down payment, have a long-term loan, or are leasing a car. Gap insurance can be purchased from car insurance companies, lenders, or dealerships, with prices ranging from $20 to $40 per year when added to a car insurance policy and between $400 and $700 when purchased from a dealership.

Gap insurance covers the difference between the compensation you receive and the amount you still owe on a car loan

Gap insurance, or guaranteed asset protection, is an optional coverage that pays the difference between what your vehicle is worth and how much you owe on your car loan at the time it’s stolen or totaled. This coverage supplements a comprehensive or collision car insurance payout, which can only be as high as your car’s value.

In other words, gap insurance covers the difference between the compensation you receive and the amount you still owe on a car loan. For example, if your car is worth $20,000 but you still owe $25,000 on the loan, gap insurance will cover the $5,000 gap.

Gap insurance is an add-on to your regular auto insurance and not a replacement for it. It is designed to financially protect drivers if their car is totaled or stolen and they owe more on the loan than the car's current market value. It is not a standard part of auto insurance and is typically an additional coverage option that can be stacked on top of collision and comprehensive insurance within a full-coverage car insurance policy.

Gap insurance is worth considering if you've financed or leased a new car, have a long-term loan, made a small down payment, or have a car that depreciates quickly. It protects you from the financial risk of owing more on your loan than your car is worth, especially if your car is totaled or stolen.

You can generally buy gap insurance from your car dealer or lender, a specialty carrier, or a third-party insurance provider. However, buying gap insurance from your auto insurer is usually a better option as it tends to be cheaper and you can cancel the coverage as soon as you’re no longer upside down on your loan.

It is an optional coverage that can be added to a full coverage policy

Gap insurance is an optional coverage that can be added to a full coverage policy. It is an optional auto insurance coverage that helps pay your car loan if your car is lost or stolen and you owe more than the vehicle is worth. It covers the "gap" between what a car is worth and what the driver owes on their auto loan or lease if the car is totalled or stolen. It is not a standard part of auto insurance but can be added on top of collision and comprehensive insurance within a full coverage car insurance policy.

Gap insurance is especially useful for drivers who have recently financed a new car, have a long-term loan, or have made a small down payment. It is also useful for those who own a car with high depreciation, have rolled over a previous loan, or are leasing a car. Gap insurance can be purchased from a car dealer or lender, a specialty carrier, or a third-party insurance provider. It is generally inexpensive, with prices ranging from $20 to $60 per year when added to a car insurance policy.

Gap insurance is not required by state law, but it may be required by lenders and lessors. It is worth considering if you have a low down payment, a long-term auto loan, or are leasing a vehicle. It is an affordable way to protect yourself from the risk of a big expense if your car is totalled or stolen. It is also good to have gap insurance if you owe more on your car loan or lease than your car is worth.

It is not required by state law but may be required by lenders and lessors

Gap insurance is not required by state law, but it may be required by lenders and lessors. This is because gap insurance covers the difference between the depreciated value of a car and the loan amount owed if the car is involved in an accident. It is designed to protect drivers if their car is totalled or stolen and they owe more on the loan than the car's current market value.

Gap insurance is especially useful for drivers who have recently financed a new car, have a long-term loan, have made a small down payment, or have rolled over a previous loan. It is also beneficial for those who lease a car, as leasing contracts often require gap insurance as a protective measure to ensure the leasing company doesn't incur a loss if the car is totalled or stolen.

While gap insurance is not mandatory, it can provide valuable financial protection in specific situations. It is an optional coverage that can be added to a full coverage car insurance policy, which typically includes liability, comprehensive, and collision insurance. Gap insurance supplements the comprehensive or collision insurance payout, which is limited to the car's current market value, by covering the remaining loan balance.

The cost of gap insurance varies depending on the provider and the way it is purchased. It can be bought directly from car dealers or lenders as a lump-sum premium, or added to an existing auto insurance policy through an insurance company. Buying gap insurance through an insurance company is generally a more affordable option, as the cost is spread out over time without incurring interest charges.

It is worth it if you've made a small down payment, have a long-term loan, or have a car that depreciates quickly

Gap insurance is an optional type of car insurance that covers the difference between what a car is worth and what the driver owes on their auto loan or lease if the car is stolen or declared a total loss. It is worth considering if you've made a small down payment, have a long-term loan, or have a car that depreciates quickly.

When you buy a new car, its value starts to decrease, sometimes significantly. If you finance or lease a vehicle, this depreciation leaves a gap between what you owe and the car's value. For example, if you owe $25,000 on your loan and your car is only worth $20,000, gap insurance will cover the $5,000 gap, minus your deductible.

Gap insurance is especially useful for drivers who have recently financed a new car, have a long-term loan, or have made a small down payment. If you've made a small down payment, the amount you owe in car payments can quickly exceed your car's value. Loans that extend beyond 60 months can create a situation where you owe more than the car's current market value for longer.

A new car can lose up to 20-30% of its value within the first year. Some cars depreciate much faster than others. Sources like Edmunds and Kelley Blue Book can help you compare the expected depreciation of different makes and models.

Gap insurance is worth it if you finance a car with a low down payment, if you have a long-term auto loan, or if you lease a vehicle. It is an affordable way to protect yourself from the risk of a big expense if your car is stolen or totaled. Plus, if you sell your car before paying off the loan and you paid for gap insurance upfront, you are often entitled to a refund for the portion of the insurance you didn't use.

You can get gap insurance from your car insurance company, loan provider, or dealership

If you're buying a new car, you can get gap insurance from the dealer, your auto insurance company, or your loan provider.

When you buy or lease a car, the dealer will likely ask if you want to purchase gap insurance when you discuss your financing options. Buying gap insurance from a dealer can be more expensive if the cost of the coverage is bundled into your loan amount, which means you'd be paying interest on your gap coverage.

You can typically add gap coverage to an existing car insurance policy or a new policy, as long as your loan or lease hasn't been paid off. Buying gap insurance from an insurance company may be less expensive, and you won't pay interest on your coverage. If you already have car insurance, you can check with your current insurer to determine how much it would cost to add gap coverage to your existing policy. Note that you need comprehensive and collision coverage in order to add gap coverage to a car insurance policy.

Some lenders may add a gap waiver to your car loan or lease, which would serve the same purpose as gap insurance.

Gap insurance is specifically designed for drivers with outstanding loan balances on their vehicles. It is typically only available for brand-new vehicles or for models that are less than three years old.

Frequently asked questions