Alyssa Lane
Guaranteed asset protection (GAP) insurance is an optional auto insurance coverage that covers the difference between the value of a totaled car and the balance on a loan or lease. This type of insurance is useful for those who have recently financed a vehicle, as it can protect you financially if your car is totaled. GAP insurance is available from auto insurance companies, dealers, and financial institutions. It is worth noting that GAP insurance does not cover damage to your vehicle if it is not deemed a total loss, economic hardship, or interest charges on the loan.
| Characteristics | Values |
|---|---|
| What is gap insurance? | An optional, add-on car insurance coverage that can help certain drivers cover the “gap” between the amount they owe on their car and the car’s actual cash value (ACV) in the event of an accident. |
| When to get gap insurance? | When you owe more on your car loan or lease than the car is worth. For example, if you paid a small down payment on your car, your loan term is 4–5 years or your car will depreciate quickly. |
| When not to get gap insurance? | When you've paid for your vehicle outright in cash, made a significant down payment (20% or more) when financing your vehicle, or your loan balance is less than the vehicle’s current value. |
| What does gap insurance cover? | Theft (if the car is stolen and unrecovered), negative equity, and total loss from a covered accident. |
| What doesn't gap insurance cover? | Damage to your vehicle if it’s not deemed a total loss, your down payment for a new car, economic hardship and difficulty making loan payments, interest charges or penalties on the loan, engine failure, medical costs, bodily injuries, lost wages, or funeral costs. |
| Where to buy gap insurance? | Most major insurance companies, including Progressive, Nationwide, State Farm, and Allstate. Car dealerships also offer gap insurance, but it can be more expensive as the cost is added to your principal, which is then used to calculate your interest. |
| How much does gap insurance cost? | Buying gap insurance from an auto loan company can cost $500–$700. If you purchase gap insurance from your current insurer, it’s typically $20 per year for coverage. As a stand-alone policy, it can cost a one-time fee of $200–$300. |
What You'll Learn
When is gap insurance worth it?
Gap insurance is a supplemental auto coverage that pays off your loan balance if your vehicle is totaled or stolen and never found. It is worth considering if you are in any of the following situations:
- You made a small down payment (less than 20%)
- You have a long finance period (60 months or more)
- You have negative equity
- Your car depreciates faster than other cars
- Your lease agreement requires it
Gap insurance is not worth it if:
- You've paid for your vehicle outright in cash
- You made a significant down payment (20% or more)
- Your loan balance is less than the vehicle's current value
- You can afford to pay the difference between the amount owed and the car's value
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Where to buy gap insurance?
Gap insurance is available from dealers, financial institutions, and your auto insurer. When you buy a new vehicle, the car dealership may offer you gap coverage if you’re financing through them. This add-on coverage is then added to your total loan amount.
Often, you can decline the dealer’s gap coverage and obtain a gap policy through your current auto insurance company, which can help you save on total costs. In addition, gap coverage is often available from your auto lender. For example, if you get an auto loan from a credit union, you likely can get gap insurance tacked onto your monthly payment or for a one-time fee.
If you’re wondering where to buy gap insurance in New York, some of the most popular providers include Allstate, Liberty Mutual, Nationwide, Progressive, and Travelers.
It’s worth noting that gap insurance is sometimes referred to as loan or lease gap coverage.
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How much does gap insurance cost?
The cost of gap insurance depends on several factors, including the underwriter, your state, driving record, age, vehicle, and loan amount. Dealerships and lenders typically charge higher prices than car insurance companies for gap insurance.
Lenders and dealerships often sell gap insurance for a flat rate between $500 and $700, which are the highest rates for this type of policy. Additionally, you will pay interest on this amount since it will be included in your loan.
On the other hand, insurance companies offer more affordable rates, charging an average of $20 to $40 per year for gap insurance when bundled with an existing insurance policy. This increases your comprehensive and collision insurance cost by about 5% to 6% on average. If you prefer a standalone gap insurance policy, you can expect to pay between $200 and $300.
When considering the cost of gap insurance, it is important to remember that it is not mandatory coverage. However, some states require car dealers to offer it to their customers. Gap insurance is designed to protect you from paying for a car you can no longer drive due to it being stolen or totaled. It covers the difference between the car's worth and the balance owed on its lease or loan.
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When does gap insurance not pay out?
Gap insurance is an optional type of auto coverage that covers the difference between the insurance payout and what you owe on a financed vehicle. It is designed to protect you financially if your car is totaled or stolen. However, there are certain situations in which gap insurance will not pay out:
- The car is not a total loss: Gap insurance will not cover any damage that is not a total loss. It is important to note that gap insurance is only intended to cover the difference between the insurance payout and the loan amount in the event of a total loss. Repairs or maintenance resulting from an accident or engine failure are not covered.
- The claim is over the limit: Some gap insurance policies have a limit on the amount they will pay out, usually a percentage of the vehicle's value. If the claim exceeds this limit, the policyholder may be responsible for the remaining amount.
- Non-payment of policy premiums: If the policy has lapsed due to non-payment of premiums at the time of the total loss, the gap insurance will not provide any coverage. It is important to stay up to date with premium payments to ensure coverage.
- Fraud or misrepresentation: If there is any fraud or misrepresentation in the insurance claim, the gap insurance company may deny the claim and refuse to make a payout.
- Violation of loan or lease agreement: If the policyholder fails to make payments or does not have the proper coverage as per the terms of their loan or lease agreement, the gap insurance policy may not provide coverage.
- Waiting period: Gap insurance policies typically have a waiting period after purchasing the policy before coverage begins. If a total loss occurs during this waiting period, the policy will not pay out.
It is important to carefully review the terms and conditions of your gap insurance policy to understand the specific circumstances under which it will and will not provide coverage. Additionally, it is worth noting that gap insurance is not always necessary. If you have paid for your vehicle in cash, made a significant down payment, or your loan balance is less than the vehicle's current value, gap insurance may not be worth the additional cost.
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Who offers gap insurance?
Gap insurance is an optional, add-on car insurance coverage that helps cover the difference between the amount owed on a car loan and the car's actual cash value (ACV) in the event of an accident. It is generally purchased by those who have financed or leased a vehicle.
Several auto insurance companies offer gap insurance, including:
Travelers
Travelers offers loan/lease payoff insurance. To be eligible for their coverage, you must be the original owner of the financed or leased vehicle and have purchased it from a new car dealer. Their gap coverage does not extend to carry-over balances, lease penalties, overdue payments, or extended warranties. According to WalletHub, Travelers has fewer customer complaints than average.
Liberty Mutual
Liberty Mutual's gap coverage is useful if you have negative equity on your vehicle, meaning you owe more than the car is worth. Their gap insurance policy can help pay the difference between your car's value and your total loan amount if your vehicle is totaled or stolen. It does not cover engine failure, deductibles, or medical costs. Their gap insurance costs an average of $5-$15 per month.
Nationwide
Nationwide offers gap insurance for cars that are 6 years old or newer. Their gap policy covers negative equity and theft but does not cover deductible costs, engine failure, death, lost wages, or bodily injuries.
Allstate
Allstate's Guaranteed Asset Protection (GAP) plan can be added to your policy when financing a new vehicle. It covers up to $1,000 of your deductible and is available for loan terms of up to 96 months.
The Hartford
The Hartford's gap coverage is available only if you're the original owner of a new car, and you must also purchase comprehensive and collision insurance. They recommend buying gap coverage immediately when financing or leasing a vehicle.
Other insurance companies that offer gap insurance include Progressive, State Farm, and Esurance.
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Frequently asked questions
Guaranteed asset protection, or gap insurance, is an optional auto insurance coverage that covers the difference between the actual cash value of a vehicle and the amount still owed on a loan or lease in the event of a total loss.
Many major auto insurance companies offer gap insurance, including Progressive, Nationwide, State Farm, Allstate, and Liberty Mutual.
The cost of gap insurance depends on various factors, such as the actual cash value of the vehicle and where you purchase the coverage. It typically costs around $20 to $40 annually when bought from a standard insurer.
Gap insurance is worth considering when you have a large loan or long-term financing, as it can protect you from your vehicle's value depreciating faster than your loan repayment. It is also useful if you have made a small down payment (less than 20%) or your car is a make or model that depreciates quickly.
