Auto Protection Insurance: How Much Does Gap Cost?

Guaranteed Auto Protection (GAP) insurance is an optional product that covers the difference between the amount owed on an auto loan and the amount paid by the insurance company in the event of theft or damage. GAP insurance is intended to cover the cost difference if the loan balance is higher than the value of the vehicle. The price of GAP insurance varies, with auto insurance companies and direct lenders offering policies. GAP insurance is also available from dealers when purchasing or leasing a vehicle, although this option is typically more expensive.

When is GAP insurance required?

GAP insurance is required when a driver owes more on their car loan than the car is worth. This is common when a driver has made little to no down payment on the car, or has a long loan payoff period. In these cases, the driver may owe more than the car's current value. GAP insurance is also required when a driver's lease agreement demands it. Some lease providers include GAP insurance in the price of the lease.

GAP insurance is also required when a driver's loan provider demands it. This is common when a driver finances a vehicle purchase, and the lender may require GAP insurance for certain types of vehicles that may depreciate and lose value at a faster rate, such as luxury sedans or SUVs.

GAP insurance is also worth considering if you have made a small down payment, have a long finance period, or have purchased a vehicle that depreciates quickly.

If you are still paying off your car, you will need collision coverage, and you may be required to have this by the terms of your loan or lease agreement.

If you have made a down payment of at least 20% on the car when you bought it, or you are paying off the car loan in less than five years, then you may not need GAP insurance.

How much does GAP insurance cost?

The cost of Guaranteed Auto Protection (GAP) insurance varies. GAP insurance is intended to cover the difference between the amount you owe on your auto loan and the amount the insurance company pays out if your car is stolen or totaled. This difference arises due to the rapid depreciation of most automobiles in their early years.

The price of GAP insurance can vary depending on several factors, including the make and model of your car, your state, age, and driving record. According to Investopedia, adding GAP insurance to your comprehensive auto insurance policy can cost as little as $20 per year. However, the Insurance Information Institute notes that the cost of GAP insurance is typically priced at 5% to 6% of the collision and comprehensive premiums on your auto insurance policy. For example, if you pay $1,000 a year for collision and comprehensive coverage, GAP insurance may cost an additional $50 to $60.

Dealers and lenders also offer GAP insurance, but their prices tend to be higher than those of traditional insurers. On average, a dealership will charge a flat rate of $500 to $700 for a GAP policy. In contrast, an insurer for gap coverage is usually cheaper. It is important to compare prices and coverage before purchasing GAP insurance. Additionally, GAP insurance may be optional or required, depending on the terms of your lease or loan agreement.

It is worth noting that GAP insurance may not be necessary if you have made a substantial down payment on your car or are paying off the loan in a short period. In these cases, the likelihood of owing more than the car's value is reduced.

How does GAP insurance work?

Guaranteed Asset Protection (GAP) insurance is an optional product that covers the difference between the amount owed on an auto loan and the amount paid out by the insurance company in the event of theft or a total loss. It is designed to protect the consumer from depreciation, which can leave a gap between the value of the car and the loan amount. This gap can be significant, especially if a small down payment was made or the loan term is long.

GAP insurance is typically offered by dealers and lenders when purchasing or leasing a car, and the cost is added to the loan amount. However, it can also be purchased separately from auto insurers. It is important to note that GAP insurance is not required by law and can be declined if it is offered as an optional add-on.

When filing a claim, the comprehensive or collision insurance portion of the policy will pay the actual cash value (ACV) of the vehicle to the lender. If the loan amount exceeds the ACV, GAP insurance covers the remaining balance, minus any deductible. For example, if you owe $30,000 on a car loan but the car has depreciated to a market value of $26,000, GAP insurance would cover the remaining $4,000 owed to the lender after the ACV payout and deductible.

GAP insurance is intended to protect against financial loss in the event of theft or total loss of the vehicle. It does not cover regular repairs, engine failure, transmission failure, death, or your insurance deductible. It is also important to note that GAP insurance is not needed once the loan balance is equal to or lower than the vehicle's value.

What does GAP insurance cover?

Guaranteed Asset Protection (GAP) insurance is an optional product that covers the difference between the amount you owe on your auto loan and the amount the insurance company pays if your car is stolen or totaled. This type of insurance is designed for people who finance or lease their vehicles.

If your car is stolen or totaled, GAP insurance will cover the difference (or "gap") between your car's actual value (not the amount you paid) and your outstanding lease or loan balance. This can save your bank account from being drained if your car is declared a total loss.

For example, let's say you finance a $40,000 car. Two years later, you're in an accident, and your car is declared a total loss by your insurance carrier. The market value of your car at this point may be $22,000, yet you still owe $26,000 on your loan. That $4,000 "gap" is money you would still owe your lender, so GAP insurance pays off that difference.

GAP insurance does not cover costs related to vehicle repairs, personal injuries, or other accident-related expenses. It also does not cover your deductible, the amount your insurance subtracts from a claim payout.

GAP insurance is typically offered by car dealers as part of a range of options when you buy a car. However, it can also be purchased from your auto insurer or from a bank or credit union. The cost of GAP insurance varies but typically ranges from $200 to $700.

How to get GAP insurance?

Guaranteed Asset Protection (GAP) insurance is an optional auto insurance coverage that applies if your car is stolen or deemed a total loss. It covers the difference between what is owed on a vehicle loan and the actual value of the vehicle. This difference is referred to as the "gap".

From a Dealer

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 will be paying interest on your GAP coverage.

From an Auto Insurer

You can typically add GAP coverage to an existing car insurance policy or a new policy, as long as your loan or lease has not 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.

Online

Some insurance companies offer free online quotes for GAP insurance. You can compare rates from top carriers and make an informed decision.

Through a Licensed Agent

Some insurance companies connect you with a licensed independent agent in your area who can help you with GAP insurance.

Through a Lender

Although GAP insurance is offered through car dealers or lenders, you might get the best rates from a car insurance company.

Frequently asked questions