What is GAP insurance, and do I need it?

GAP insurance can save thousands of dollars but is usually an affordable add-on option to your comprehensive and collision policy, typically costing about $20 a year.

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UPDATED: 2022-11-01T22:39:19.403Z
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What You Should Know

  • GAP insurance protects you from paying on a car loan for a vehicle you no longer own after it’s been totaled
  • You can buy GAP coverage from an insurance company or car dealership, but insurance companies usually charge less
  • GAP insurance is only useful for the first few years of your car loan — you should cancel it once you’ve paid your loan down

Buying a new car is usually a time of excitement, but your happiness can turn into a nightmare if you total your vehicle. Losing a new car and finding a replacement for it is bad enough, but you also might find yourself paying for a vehicle you no longer own.

This happens when you owe more on your loan than your car is worth. Unfortunately, losing your vehicle doesn’t mean your loan ends. You’ll have to pay the rest of it off if your insurance company values your vehicle for less than you owe.

GAP insurance protects against this situation. As an affordable add-on for a collision and comprehensive policy, GAP insurance is a good choice for new car owners.

However, GAP insurance isn’t right for everyone. Learn more about GAP insurance below, then compare rates to find the most affordable protection for your car.

Pros and Cons of GAP Insurance

GAP insurance offers valuable protection for your car, but it's not recommended for everyone. Like all other types of insurance, GAP coverage has pros and cons. First, consider the pros:

  • Pays off an upside-down loan if you total your car
  • You only have to pay for it as long as you need it — once you pay down your loan, you can cancel it
  • GAP insurance is usually a cheap addition to your policy

Although GAP insurance can save you a lot of money, it’s not the best choice for every driver. Here are a few cons to look out for:

  • Only new cars are eligible for coverage
  • GAP insurance is only useful for a short time
  • Other options might have better coverage for your needs

GAP insurance is specialty coverage that might be right for new car owners with a loan or lease on their vehicle. However, you might find better coverage with another option, so it’s important to explore your options before making a decision.

What is GAP insurance?

GAP stands for Guaranteed Asset Protection and is an add-on that pays off the remainder of a loan or lease if you total your car. It also covers your vehicle if someone steals it and it isn’t recovered.

Unless you paid a large down payment, you’ll likely owe more on a loan or lease than your vehicle is worth for the first few years. When you owe more on your loan than your car is worth, your loan is considered upside-down or underwater.

While an upside-down loan isn’t usually a problem, it becomes an issue if you total your car. Comprehensive and collision insurance will pay for a totaled car, but your insurance company will only cover your vehicle’s actual cash value (ACV).

If your car’s ACV is lower than what you owe on the loan, you’ll be stuck paying for a vehicle you no longer own. GAP insurance protects you from falling into this situation — it pays off the remainder of your loan.

How does GAP insurance work?

With the exception of a few classic or collectible cars, vehicles lose value with every passing year. Depreciation is essentially what GAP insurance protects against.

It might sound complicated, but GAP insurance is simple. An easy way to understand how GAP insurance works is with a quick example. If you ever total your car, your insurance company will evaluate its ACV.

Say your insurance determines that your car’s ACV is $10,000. That’s how much you’ll have to replace your vehicle, minus whatever your deductible is. However, if you have a loan for $15,000, you’ll have to pay the remaining $5,000 from your own pocket.

GAP insurance steps in to cover the remainder of your loan, so you don’t have to worry about paying it off.

Only new cars are eligible for GAP coverage, and you need collision and comprehensive insurance before you can buy it. If GAP coverage sounds right for you, make sure to speak with an insurance representative — requirements vary by company.

How do insurance companies decide to total a car?

Laws vary by state, but most companies consider a car totaled when the cost to repair it is higher than the car’s ACV.

Each company is different, but most companies will declare a car totaled when the cost to repair is 75% to 90% of the vehicle’s ACV. Your car will also be declared totaled if it’s stolen and can't be recovered.

Most states use a formula to determine the total-loss threshold that local insurance companies must adhere to, which can vary by vehicle and the cost of the claim. However, the 22 states listed below set a specific threshold all vehicles must meet.

Check your state's laws below to get a better idea of when your car might be declared a total loss.

State Total-Loss Threshold
Alabama 75%
Arkansas 70%
Colorado 100%
Florida 80%
Indiana 70%
Iowa 50%
Kansas 75%
Kentucky 75%
Louisiana 75%
Maryland 75%
Michigan 75%
Minnesota 70%
Missouri 80%
Nebraska 75%
Nevada 65%
New Hampshire 75%
New York 75%
North Carolina 75%
Northa Dakota 75%
Oklahoma 60%
Oregon 80%
South Carolina 75%
Tennessee 75%
Texas 100%
Virginia 75%
West Virginia 75%
Wisconsin 70%
Wyoming 75%

When your car is declared a total loss, your insurance company usually keeps the vehicle and sells it for salvage. The check you’ll receive for your car depends on the coverage in your policy.

What doesn’t GAP insurance cover?

GAP insurance offers invaluable protection for people with a car loan or lease, but it doesn’t cover every situation. Reasons GAP insurance won’t pay include:

  • Insurance deductibles
  • Late fees on your loan or lease
  • Excessive mileage penalties on your lease
  • Security deposits
  • Extended warranties
  • Down payments for a new car
  • Carry-over balances from previous loans

GAP insurance might not cover everything, but the protection it offers might be worth it — it all depends on your unique situation.

Is GAP coverage worth it?

GAP coverage offers excellent protection for people who have recently bought or leased a new car. However, it might not be worth it for you to include it in your policy, even if you have a new vehicle.

GAP insurance is a good choice for anyone who:

  • Leased a car
  • Chose a car loan for 60 months or more
  • Purchased a vehicle that depreciates quickly
  • Put less than 20% down when you bought the car

If you put a significant amount down for a new car or select a short loan, GAP coverage won’t benefit you long enough to make it worth it.

You also won’t need GAP insurance if you’re not the first owner of your car. Anyone who owns their car outright also gets no benefit from paying for GAP insurance.

How do you know if you have GAP insurance?

Many people assume that GAP coverage is automatically included in their car loan or lease. While that’s sometimes the case, it’s not always true.

There are two places to check if you already have GAP insurance. The first is your car insurance policy. Most insurance companies allow you to view and manage your policy online, so you might be able to look at your coverage in your account.

If your insurance company doesn’t have an online option or you can’t determine whether you have it on your own, you can ask a representative for help. They’ll be able to review your policy and tell you what you have.

The second place you can check is in your car loan or lease, either by reading it yourself or calling your dealership.

If you’re interested in GAP insurance, you should determine if you have it quickly. Most insurance companies do not sell GAP coverage after you’ve owned your car for 30 days.

How do you buy GAP insurance?

There are two primary ways to buy GAP coverage, and both are easy.

Your first option is to purchase GAP coverage from an insurance company. Not all companies sell GAP coverage, so you’ll need to shop around a bit to find it.

Once you’ve found a company you want to buy from, the easiest way to add it to your policy is to speak with an insurance representative. Some companies will let you add it online, but a representative can always help if that’s not an option.

The second place you can buy GAP coverage from is your car dealership. Buying GAP insurance through a dealership is usually a little more expensive, but they can add it to your loan or lease. The cost of your GAP insurance will then be added to your monthly car payment.

How much does GAP insurance cost?

GAP coverage is generally an affordable add-on for car insurance, adding as little as $20 annually.

Although insurance companies are usually the cheapest option for GAP insurance, you can also buy it through your car dealership. Dealerships typically charge a flat fee between $500 and $700 for GAP insurance, which is much more than you’d pay with an insurance company.

Like all other types of car insurance, GAP insurance rates vary by company. Use our free quote comparison tool below to get an idea of how much GAP insurance costs from auto insurance companies near you.

Which companies sell GAP coverage?

Despite being essential protection for people with a new car loan or lease, not all companies offer GAP insurance.

To get GAP coverage through an insurer, you’ll have to shop at one of the following companies:

  • Allstate
  • Nationwide
  • American Family
  • Liberty Mutual
  • Travelers
  • Auto-Owners
  • Erie

While only a handful of companies offer GAP insurance, other big names like GEICO and State Farm have similar products. For example, Progressive offers loan/lease payoff protection, while State Farm has Payoff Protector.

How does depreciation affect GAP insurance costs?

The rate of your car’s depreciation determines how long you need GAP coverage. Cars that depreciate slowly need GAP insurance for a shorter period since you’ll likely pay off your loan past your car’s ACV quickly.

If you’re in the market for a new car, there are several reasons to buy a car with slow depreciation, GAP insurance being only one of them.

Vehicles that lose value slowest are typically popular models that never go out of style. For example, Jeep Wranglers retain value very well because people regularly buy them new and used.

Some of the slowest depreciating cars include the following models.

  • Chevrolet Corvette
  • Dodge Challenger
  • Ford F-Series
  • GMC Sierra
  • Nissan Frontier
  • Porsche 911
  • Toyota 4Runner
  • Toyota Tundra
  • Toyota Tacoma
  • Tesla Model X

On the other end of the spectrum, some cars have a reputation for losing value quicker than others. Vehicles with the fastest rates of depreciation include the following models.

  • Audi A6
  • Acura RLX
  • BMW 5 and 7 Series
  • Chevrolet Volt
  • Lincoln MKZ
  • Mercedes-Benz S and E-Class
  • Nissan Leaf
  • Volvo S60

Vehicles that rapidly lose value tend to be expensive luxury cars, primarily because those who buy them usually don’t buy used.

Regardless of how quickly your car loses value, GAP insurance can save you thousands of dollars if you ever total your car. If you buy GAP insurance, it’s vital that you monitor your car’s ACV compared to how much you owe on your loan. Once you pay your loan down, you can cancel your GAP coverage.

Alternatives to GAP Insurance

GAP coverage doesn’t fit every driver’s needs, even if you qualify for it. However, GAP insurance isn’t your only option for protection when you have a loan or lease. Consider the following alternatives to GAP insurance:

  • Loan-lease insurance. Loan-lease coverage is popular because it works similarly to GAP insurance but covers more cars. You can also buy loan-lease insurance whenever you need it instead of in the first 30 days of your ownership.
  • Replacement value coverage. If you opt for this coverage, your insurance company will pay to replace your new car with a similar make and model rather than cover its ACV.
  • Better car replacement insurance. A few insurance companies offer an add-on that will replace a totaled car with a newer model, though it can significantly increase your rates.

Choosing the right option depends on how much you want to spend, when you bought your car, and what your insurance company offers. If you can’t decide which option would work best for you, an insurance representative can provide more guidance.

Find the Best GAP Coverage for Your Car

GAP insurance is an affordable add-on that protects you from paying on an underwater loan. It’s not suitable for everyone, but people with a new car loan or lease don’t have to worry about totaling their vehicle.

Since GAP insurance isn’t available with every company, you’ll probably need to shop around for it. You should compare quotes with as many companies as possible to find the right coverage and best rates for your needs.

Frequently Asked Questions About GAP Insurance

Want more information about GAP insurance? Learn more below.

What does GAP insurance mean?

GAP stands for Guaranteed Asset Protection, and it protects you from paying for a car loan on a vehicle you no longer own.

Do you need GAP insurance after you buy a car?

Some car loan lenders and leasers require you to carry GAP coverage, but it’s not always necessary. You can skip GAP insurance if you put more than 20% down when you buy the car, or your loan will be less than 60 months long.

What does GAP insurance do?

If you total a car you don’t own outright, you might owe more on your loan than the vehicle is worth. GAP insurance pays the difference between what you owe and what your car is worth.

Can you buy GAP insurance at any time?

Most GAP insurance add-ons must be purchased within 30 days of buying a car, and you usually have to be the first owner to qualify. If that doesn’t apply to you, loan-lease insurance might work.

How do you get GAP coverage?

You can purchase GAP coverage by asking your insurance company to add it to your policy. Alternatively, you might be able to add GAP insurance to your car loan or lease at the dealership.

Do you need GAP insurance?

Most drivers don’t need GAP coverage. The only time you might need GAP insurance is when your car’s value is less than what you owe on your loan.

When can you drop GAP insurance?

Typically speaking, you can drop GAP insurance whenever you’d like. However, you should check with your car loan or lease — some contracts specify how long you need to carry GAP insurance.

Are GAP insurance and full coverage the same?

Full coverage car insurance refers to a suite of auto insurance products, including liability, collision, comprehensive, uninsured/underinsured motorist, and medical payments or personal injury protection.

GAP insurance is an add-on that requires at least collision and comprehensive policies and is not the same as full coverage.

How do you know if you have GAP insurance?

There are two places to check for GAP coverage. You can check with your dealership to see if your loan or lease automatically included it. Alternatively, you can look at your car insurance policy to see if you already have it.

Do you get money back from GAP insurance?

You won’t get a refund for GAP insurance after you cancel it unless you’ve paid for your entire policy up front and didn’t use all of it. If you have GAP coverage included in your loan and you pay your loan off early, you might receive a refund for the unused portion.

Does GAP insurance cover theft?

GAP insurance does not cover your car after theft — that’s what comprehensive insurance is for. However, it will cover the difference on your loan if your company declares your vehicle a total loss after a theft.

How long does GAP insurance last?

The length of time your GAP insurance lasts depends on where you get it from.

GAP coverage from a car insurance policy can be canceled whenever you’d like, though the best time is to wait until you pay your loan down. Getting your GAP coverage from a dealership will likely last your whole loan or lease.

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