Is Gap Insurance Worth It?

Drivers talk after car accident. Wonder if gap insurance is worth it.

In the Article

New, totaled cars weigh down millions of drivers who still carry loans and leasing terms after their claim payments. Explore GAP insurance coverage, and see how it can help.

What is GAP Insurance?

Driving legally requires insurance only up to a minimum. So, no matter who the owner of the vehicle is or what fault they take in a possible accident—coverage can fall short. When comprehensive, liability, or collision insurance isn’t enough to cover the cost of a claim on a total loss, GAP insurance protects the policyholder from bearing the burden.

GAP insurance (though it bridges the divide between coverage and costs) actually stands for “Guaranteed Auto Protection,” and it comes in handy to boost a traditional policy. For example, after a total loss, you could be left with a significant car loan payment even after insurance payments. GAP insurance can help settle what you owe.

Whether your car becomes a total loss through a collision, theft, or other event—GAP insurance covers the difference between what your traditional policy covers and what your car loan demands.

Learn how it works, and read on to see whether you should protect yourself (and your car) with GAP auto insurance.

How Does GAP Insurance Work?

To understand GAP insurance, you must know the difference between the value of your car and its price tag. When you look for cars online and at the dealership, you see the price tags. But, when a car accident occurs and you submit an insurance claim, the insurance company looks at the value of your car when issuing a payment.

GAP insurance works in this area between what’s covered and what’s left. When you buy a car with a car loan, auto insurance companies see only the current, driving, and decreasing value of your car as they make their calculations. If someone hits and totals your new car when the value is less than the loan, GAP insurance can then pick up the slack.

What Does GAP Insurance Cover?

Many drivers owe more on their car than its current value in the eyes of their insurance companies. Cars lose value the more time that passes on the road, but the loss of value is steepest after the first few moments driving the car off of the lot. From that crucial moment, GAP insurance covers the amount you might still owe on your car loan:

  • You went out and bought a car for $23,000 on a loan (with $300 payments every month) and someone totals your car after 10 months.
  • You’ve paid your car loan down to $20,000. Submitting a claim for your vehicle, you find out that your car is—after 10 months—valued at just $16,000.
  • When the insurer pays the value, GAP insurance will cover the remaining $6,000 that you owe on the loan.

What Doesn’t GAP Insurance Cover?

Most cars are worth less than they cost because they decrease in value over time. It’s not surprising then that so many drivers want insurance that can help cover what was originally paid, but GAP insurance comes with conditions. It doesn’t cover every GAP between what you may have paid for your car and what the insurer is willing to approve on your claim.

If you pay $23,000 outright for a car that turns out to be valued at only $15,000 and that car becomes a total loss after just a few weeks, GAP insurance won’t pay the difference. While it’s clear that you may have paid more than the car is currently worth, the outright payment means the “GAP” doesn’t come from an amount you still owe.

In other words, GAP insurance doesn’t just make up for what another policy won’t. Instead, it’s designed to help drivers overcome the difference between a car’s price and its value in the event of a total loss.

When to Consider GAP Insurance

GAP insurance makes sense for drivers who owe more on their car than it’s valued. When you finance, borrow, or lease—the coverage can help you avoid making monthly payments on a totaled or stolen vehicle. Beyond this, you should consider GAP insurance according to the size of your down payment, your loan terms, leasing requirements, and based on the vehicle itself.

If you make a small down payment, for example, you probably already owe more than the car’s value. With long loan terms for smaller monthly payments, you also raise the potential for higher debt as your car’s value decreases. In other situations like high mileage usage and buying a newer car, GAP insurance can give peace of mind.

Who Needs GAP Insurance?

Favorable loan, leasing, and financing terms open up risks, and those who take them should think carefully about GAP insurance. When you make “no downpayment,” choose 84-month terms, or buy the newest model—your car could easily drop value at an alarming rate.

Without cutting down on the original loan amount immediately with a downpayment, the car’s value plummets just as it does with low monthly payments. At the same time, buying the latest vehicle usually means that it will lose its value more steeply than an older car.

In short, if you owe—and you likely do—more on your car than its true value, you should consider GAP insurance to satisfy the debt.

GAP Insurance for Leased Cars

New, leased cars bring a high risk of losing value, getting stolen, and resulting in expensive claims. To cover themselves, your car dealership may require you to carry GAP insurance. They may even offer it to you as an add-on within their selection of leasing options. Even if it’s not a requirement, get an independent quote and shop for the best rate.

How Much Does GAP Insurance Cost?

GAP insurance could cost you as little as $20 per year, but it depends. Your premium will be unique to you because it is typically calculated as a percentage (around 5%) of your comprehensive and collision premium. At that rate, someone who pays $1,500 for car insurance every year can expect a $75 premium for the same insurance.

The cheapest GAP insurance rates are offered by independent insurance companies seeing certain insurance factors on your application. Look at rates and quotes to get a specific idea of what you might pay for your car.

Is GAP Insurance Worth It?

GAP insurance helps drivers avoid paying for a car that’s totaled or stolen. You stand to gain from GAP insurance whenever you owe more on the car than it’s currently worth (according to the insurance company). After a total loss like a collision or theft, you want to buy a new car as quickly as possible. GAP insurance gets you closer.

Pros and Cons of GAP Insurance

More coverage is an obvious advantage of GAP insurance when it helps you escape having a loan on a lost car—but, GAP insurance doesn’t work for every driver. Among its advantages, GAP insurance is primarily cost-effective for the modern car buyer:

  • Fits high car loan amounts with good terms
  • Suits a driver looking for security and savings
  • Helps overcome price vs. value

While GAP insurance costs very little and stands to help millions of car buyers, its major disadvantage is that it won’t kick in when you don’t owe on a car loan or lease. If there is a big difference between what you recently paid outright for the car and what the insurance will cover, GAP insurance can’t help.

How to Get GAP Insurance

If you’re interested in GAP coverage, you can easily add it to your existing insurance policy. When you buy your new car, apply with your current or chosen insurance company. They’ll provide a quote and a set of agreements for you to accept upon approval. Start looking for low-cost gap insurance on your new car.

GAP coverage can also be purchased when you are buying or leasing a new car. This might be preferred when your existing car insurer won’t extend the option—even if it is more expensive than getting the policy from a large, independent car insurance company.

Can You Get GAP Insurance After You Buy a Car?

If you pass on the offer for GAP insurance at the dealership, you can decide to get a GAP insurance policy by shopping around on your own. You don’t need to buy GAP coverage immediately at the dealership or as part of a loan offer. Get a better rate when you compare GAP insurance quotes.

Alternatives to GAP Insurance

GAP insurance covers the stolen and totaled from burdening drivers, but there are other ways you can shrink the difference between what you owe and what your car is worth.

There are, for example, loan and lease payoff options from some insurers that promise to pay 25% or more of your car’s value in addition to the claim amount. With the extra, you can (hopefully) cover the loan balance.

Replacement insurance is another option if your main worry is less about the costs and more about the car. The insurer will help you pay for a new (or better) vehicle to replace the totaled or stolen car.

Many of the same companies who offer traditional car insurance also sell GAP insurance, replacement coverage, and loan payoff options. Explore your insurance options.

Insurance Companies That Sell GAP Coverage

The losses that drivers without proper insurance face are sharp, so most major car insurance companies offer GAP insurance policies. From Progressive to Nationwide, you can find both GAP coverage and its alternatives with names you recognize. Here is a list of some of the most recognized companies that give drivers this coverage:

  • American Family
  • Liberty Mutual
  • Progressive
  • Nationwide
  • Statefarm
  • Esurance
  • Safeco
  • AAA

GAP Insurance FAQs

Is GAP insurance worth the money?

If you owe more than your car is worth (in value), GAP insurance keeps you safe from losing your car and being unable to replace it due to an outstanding loan. That’s worth it for many drivers.

Do I need GAP insurance if I have full coverage?

Full coverage calculates a total loss based on the current value of a vehicle (on the day of the accident or theft). That amount is usually less than the amount the driver owes on the new car, meaning that GAP insurance could be a helpful addition to your policy.

Is GAP insurance worth it for a used car?

It’s uncommon for a used car to carry GAP insurance, but it can be worth it if the amount owed on the car remains more than its value according to your insurance company.

Can GAP insurance refuse to pay?

GAP insurance, like all insurance, can refuse the claim. But, as long as payments have been timely, there is a debt, and the car is totaled—there should be little delay with investigating and paying the claim

What happens when your car is totaled and you still owe money?

After a car is totaled, the insurer will issue the appropriate, value-based payment for the car, but it will often not cover what’s owed, leaving you to make up the balance and replace your car on your own. GAP insurance is designed to help you out of that unfortunate situation.

How much is a GAP insurance refund?

If you pay off your car before your GAP policy has ended, you can get refunds calculated based on the portion of the policy that has not yet been used.

How much is GAP insurance monthly?

A GAP insurance policy is usually a percentage of the total premium for collision and comprehensive coverage on the car. Staying around 5%, you could pay anywhere from $20 to $200 per year for this essential protection.

 

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