The Best Gap Insurance Coverage Options

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Written by Sarah Sharkey Edited by Quiana Darden Reviewed by Amanda Clear

Updated January 26, 2023

If you’re financing a vehicle purchase, you might want to check out gap insurance. Although this insurance coverage isn’t required, it offers a way to protect your finances from the fallout if your vehicle is totaled or stolen. 

Before you secure gap insurance from the first place that offers it, it’s best to explore your options. 

If you need help nailing down the right insurance provider, we’ll explore the ins and outs of finding a policy that suits your budget and coverage needs. 

Key Takeaways

• Many car insurance companies offer gap insurance as optional coverage.
• Working with a reputable car insurance company typically leads to savings compared to accepting the dealership’s standard offering. 
• Shopping around is essential if you want to lock in the best rate for this auto insurance policy. Otherwise, you might overpay. 

What is Gap Insurance?

Before we dive into the best gap insurance companies, let’s take a quick look at the definition of gap insurance. Gap insurance is an optional auto insurance coverage that you can purchase to cover your remaining loan balance if the car is stolen or totaled. 

For example, let’s say you have a car worth $10,000. But at the moment of your accident, you have a remaining auto loan balance of $15,000. After deeming the vehicle a total loss, your collision coverage pays you $10,000, representing the car’s actual cash value. Without gap insurance, you remain on the hook for $5,000 to your lender. But with gap insurance, this policy will pay out $5,000 to pay off the remaining loan balance. 

When Do You Need Gap Insurance?

Essentially, gap insurance protects you from the reality of depreciation. If the car depreciates faster than you can pay off the loan, you might find yourself in an uncomfortable situation with a loan balance even though you cannot drive the vehicle. 

Gap insurance isn’t required on a state level. But sometimes, your dealership or leasing company might require you to carry it in order to protect their financial investment.

Even if the coverage isn’t required, you might purchase gap insurance to protect your finances. If you owe more on your auto loan than the vehicle is worth, buying gap coverage will eliminate your out-of- pocket expenses to your lender. 

However, if you can easily cover the remaining balance if your vehicle is stolen or totaled you might opt out of securing this type of coverage. 

Best Car Insurance Companies for Gap Insurance Coverage

When shopping for car insurance, one priority is to find a policy that suits your price range. But finding a low rate is only one part of finding an insurance policy that works for you. 

Beyond a reasonable price, considering other factors, like customer satisfaction, can help you avoid a headache later on. If you choose a policy based on price alone, you might end up working with a company that makes navigating the claims process challenging. 

Since not all car insurance companies have the same financial strength or customer satisfaction level, it’s critical to see where a company stands before committing to a policy. Here’s a look at some of the best car insurance companies for gap insurance coverage. 

Amica Mutual

Amica Mutual has an interesting ownership structure dating back to 1907 – the policyholders own the organization.

Interestingly, Amica Mutual earned the highest customer satisfaction rating in the J.D. Power study’s New England region. 

Therefore, you’ll likely have a good experience if you work with Amica Mutual. The organization has solid financial strength that scored an A+ A.M. best rating.

Progressive 

Progressive is one company that offers some of the best premiums in town. It provides loan/lease payoff coverage, equating to gap coverage. 

In the J.D. Power U.S. Auto Insurance Study, Progressive only scored close to average customer satisfaction ratings. However, it did earn 3.8 out of 5 stars with over 1,800 ratings on Consumer Affairs. 

The company has also earned high marks for financial strength, with an A+ A.M. 

The Hartford

The Hartford insurance company works with AARP members, catering to individuals over 50. But you’ll find top-notch customer service with policies aimed at more mature drivers. 

In the J.D. Power study, Hartford came out on top in the Northwest region. Additionally, the company earned 3.9 out of 5 stars with almost 400 ratings on Consumer Affairs. 

If you find a policy you like, consider participating in TrueLane, a telematics program that could lead to more savings for safe drivers. 

Nationwide

The familiar jingle of ‘Nationwide is on your side’ might translate into a high-quality gap insurance experience. Typically, their gap insurance costs around 5% of the cost of comprehensive and collision insurance. 

Importantly, you’ll need to request this coverage within six months of financing or leasing a new vehicle. According to a J.D. Power study Nationwide earned a 3.4 out of 5-star rating with over 2,400 reviews.  Most reviewers pointed out that the company held up its end of the bargain. 

Tips for Finding the Best Gap Insurance Companies

When looking for gap insurance, it will quickly become evident that you have plenty of choices. Of course, you only need to work with one insurance company. But how can you nail down the absolute best option for your situation? 

Here’s a closer look at my top tips for finding the best gap insurance companies:

Don’t Sign up for the Dealership’s Offer Right Away

Many will offer you gap insurance on the spot when you obtain financing or finalize a lease through a car dealership or bank. Before signing on the dotted line, take the time to read the fine print. 

In some situations, the dealership or bank offers perfectly reasonable coverage. But other dealerships and banks offer costly gap insurance options. 

Although some banks and dealerships will require you to purchase their gap insurance option, many allow you to make this purchase through any insurance company. Consider your other options before using a dealership’s insurance options. 

Shop Around for the Best Rates

Gap insurance is usually an add-on option for your full coverage policy. With that, getting the best rate on your gap insurance often means shopping for all your car insurance coverage. 

As you consider your options, shop around. If you decide not to shop around, it’s almost impossible to know if you are getting the best deal. Luckily, shopping around for car insurance is becoming more acceptable every day. 

If you envision a tedious process of calling up individual insurance companies, that’s a thing of the past. You no longer need to spend hours hunting down quotes from various insurance companies. Instead, you can scope out the best rates in minutes with our free comparison tool. 

Shopping around is the only way to know that you’ve locked in the best rate. However, you want to consider the insurance company’s reputation before moving forward with a rock-bottom rate. Finding a company that strikes the right balance of relatively low rates and a high-quality customer service experience is essential. 

Keep the Deductible in Mind

When shopping around for your insurance policy, keeping the deductible is a must. The deductible is the amount you’ll have to pay out-of-pocket when making a claim. For example, a policy with a deductible of $500 will require you to pay that amount towards repairs when making a claim before it will contribute toward your costs. 

One key element of an appropriate insurance policy is choosing the right deductible amount. But the right deductible amount varies based on your situation. Generally, an insurance policy with a higher deductible will lead to a lower insurance policy premium. On the other hand, a lower deductible often comes with a higher premium. 

Opting for the highest deductible is tempting as you shop around because it results in lower premium costs. If you have a robust emergency fund, opting for a high-deductible insurance policy might suit your situation. But you’ll be stuck in a real pickle if you don’t have enough money to cover your insurance policy’s deductible. 

With that in mind, it’s best to choose a deductible you can afford.

How Does Gap Insurance Work?

When you purchase gap insurance, the policy covers the difference between the vehicle’s value and the balance of your car loan or lease. 

Your baseline coverage would kick in first if the vehicle is stolen or completely totaled in a car wreck. After your collision or comprehensive coverage covers the vehicle’s value, the gap insurance would cover the remainder of your loan or lease balance. 

This insurance policy ultimately ensures you aren’t on the hook for the rest of the loan balance when you can’t drive the vehicle. With that, it offers increased protection for your financial situation. 

FAQs

Is gap insurance an option for used cars?

Yes, it’s possible to purchase gap insurance for used cars. Although different insurance companies have rules surrounding gap insurance and car ages, many offer gap insurance for vehicles under three years old. 

Is gap insurance required?

Unlike some kinds of car insurance, gap insurance isn’t required coverage on any state level. 

In many cases, it’s not necessary to purchase gap insurance. However, some lenders and leasing companies will require it. To find out if you are required to carry gap insurance, check the terms of your financing or lease agreement. 

Is gap insurance worth it?

Although gap insurance isn’t always required, it might be worth it for your unique situation. 

In many cases, it makes sense to purchase gap insurance when you owe more on your car loan or lease than it is worth, and it’s a handy option for any driver that can’t comfortably cover the difference between the car’s actual value and loan amount. 

Ultimately, you’ll need to run the numbers of your unique situation to determine whether or not gap insurance is a good fit. 

When can you drop gap insurance?

When your vehicle is worth more than your remaining loan balance, hanging onto gap insurance doesn’t make sense. If gap insurance no longer makes sense, you can drop the coverage.

Sarah Sharkey Auto Insurance Writer

Sarah Sharkey is a personal finance writer and auto insurance who loves diving into the details to help readers make savvy life choices. She has written for numerous publications, including Business Insider, SmartAsset, and Rocket Mortgage.