Gap (guaranteed asset protection) insurance is often a good investment if you buy or lease a new or expensive car. If the car gets totaled or stolen, gap insurance will pay the difference between your car’s diminished value and what you still owe.
“Gap insurance can be beneficial because cars often depreciate faster than loan balances, and most standard auto insurance policies only pay the car’s actual cash value (ACV), which is the depreciated value of the vehicle at the time of damage. Gap insurance covers this gap, and prevents you from having to pay extra money out of pocket to settle the remainder of the loan after a claim is made,” says Joe Giranda, director of sales and marketing for CFR Classic, an international car shipping company.
If you’re considering the purchase of a used vehicle, however, you might wonder if you can get gap insurance and whether it’s necessary. The answer is yes — you can purchase gap insurance for a used car. However, insurance companies often have specific requirements, and many do not offer it for used vehicles.
In this guide, we’ll look at the benefits of gap insurance for used vehicles and when it can be helpful to have gap insurance on a used car. We’ll also highlight alternatives to gap insurance if your used car doesn’t qualify for coverage.
Carinsurance.com Insights
- Gap insurance is available on used cars under a certain age and mileage.
- You can only get gap insurance if you have a full coverage policy with collision and comprehensive insurance.
- If you don’t qualify for gap insurance, loan/lease payoff coverage and new car replacement coverage are potential alternatives.
Can I get gap insurance on a used car?
Yes, you can get gap insurance on a used car. You can add gap insurance as an endorsement to your auto insurance policy or purchase a separate gap insurance policy through a dealership or auto manufacturer. However, not every used car qualifies for gap insurance.
“Some insurers provide gap coverage on used vehicles as long as they are financed or leased, and the loan amount is greater than the car’s ACV. Not all used vehicles qualify, particularly older models or those with high mileage, so it’s important to check with the insurer to see if your vehicle qualifies,” Giranda says.
However, most insurance companies only offer gap insurance if you’re the original owner or lessee of the vehicle. So, for example, if you purchase a car that’s 5 years old on the private market from the first owner, you likely won’t be eligible for gap coverage as the second owner.
Another thing to know is that gap insurance is only available if you carry a full coverage policy with collision and comprehensive insurance. These are the only policies that cover physical damage and theft. If you have a state minimum coverage policy with liability insurance, you won’t be able to add gap insurance.
How does gap insurance work for a pre-owned car?
Gap insurance on a pre-owned vehicle works similarly to gap insurance on a new car. If your car is totaled in a covered loss or gets stolen, your gap insurance will cover the difference between your car’s ACV at the time of the incident and what you still owe the lender.
Here’s an example of how gap insurance works. Suppose your used vehicle is worth $10,000 and gets totaled in a flood. You still owe $15,000 to the lender. In this case, your comprehensive insurance would pay $10,000 minus your deductible, and your gap insurance would cover the remaining $5,000 you owe.
Your insurer might pay the lender directly, or you might receive a check to pay off the loan yourself. In either case, it is essential to follow up with your lender to ensure your loan has been paid off and closed.
When should you buy gap insurance on a used car?
There are a few situations where gap insurance can be worth it on a used car.
“Purchasing gap insurance on a used car is wise if it has been financed with a low down payment, longer loan term, or higher interest rate. These circumstances can leave the borrower needing to pay more on the car than it’s worth during the first few years of the loan, leading to negative equity,” says Giranda.
For example, gap insurance on a used car could be a good investment if your down payment is less than 20%, you’re financing the vehicle for longer than 60 months, or you rolled over negative equity from the previous loan into the new loan.
“Gap insurance is also recommended for cars whose resale values drop quickly,” adds Giranda.
It’s worth noting that you can only get gap insurance when purchasing and insuring a used car. Most insurance companies won’t sell gap insurance if you’ve owned the car for several years. If you’re thinking about getting gap insurance, you’ll need to make that decision before you buy car insurance or add the used car to your existing policy.
How much is gap insurance on a used car?
According to the Insurance Information Institute (Triple-I), adding gap insurance to a full-coverage policy adds roughly $20 to the annual premium. Gap insurance purchased through dealerships or auto manufacturers tends to be more expensive.
The cost of gap insurance on a used car depends on multiple factors. Some of the things that can affect your premium include:
- Vehicle make and model
- Vehicle value
- Vehicle age
- Mileage
- Loan amount
- Location
What are the alternatives to gap insurance?
Many used cars don’t meet the requirements for gap insurance. If you can’t get gap insurance, here are some alternatives you might consider:
- Loan/lease payoff coverage works similarly to gap insurance, but it only pays a certain percentage of your vehicle’s ACV (usually around 25%). For example, if your car’s ACV is $10,000 and it gets stolen, loan/lease payoff coverage would give you up to $2,500 to pay off the loan. Another benefit of loan/lease payoff coverage is that you can buy it anytime, not just when you purchase or insure the car.
- New car replacement coverage is an endorsement that can be added to your full coverage car insurance policy. If your car gets totaled or stolen, it will pay to replace it with a brand new one of a similar make and model. With a larger payout, you can use a portion of the money to pay off your loan and put the remaining amount towards a new car.
Final thoughts
Gap insurance can be beneficial if you’re considering financing or leasing a used car. However, it’s essential to be aware of many insurance companies’ restrictions and requirements. Typically, gap insurance is only available to original owners of vehicles that are less than a few years old. Also, you must add coverage right away.
There are several alternatives to gap insurance if you don’t qualify, like loan/lease payoff coverage and new car replacement coverage. You can also consider making a larger down payment to reduce the amount of negative equity you have. It’s a good idea to compare several options to find the one that makes the most sense for your situation.
Frequently asked questions
Is gap insurance worth it on a used car?
If you meet the insurer’s requirements, gap insurance can be worth it on a used car. If your vehicle gets totaled, gap insurance can help you avoid paying off the loan using your savings.
Can I purchase gap insurance after buying a used car?
Most insurance companies have a short window for purchasing gap insurance on a used car. For example, you might have 30 days to add gap insurance after insuring the vehicle. Once the period is over, you are no longer eligible for gap insurance.
What is the maximum amount gap insurance will cover for a used car?
The maximum amount gap insurance will cover on a used car depends on the insurance company or provider. Some policies have a coverage limit, and others don’t. Before you get gap insurance, you should find out whether the policy has a coverage limit and, if so, how much it is.
Sources
- Insurance Information Institute. “What is gap insurance?” Accessed April 2025.
- Insurance Information Institute. “What is diminished value?” Accessed April 2025.
- International Risk Management Institute. “Guaranteed auto protection GAP.” Accessed April 2025.
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