Gap insurance is one of the most affordable coverages you can buy, typically less than $60 a year. But you can end up paying significantly more than that if you buy it from the wrong place. Here we’ll explain what you need to know to keep gap insurance costs as low as possible.

How much is gap insurance?

How much gap insurance will cost you primarily depends on where you buy it. Gap insurance on a new or used car is much cheaper if you purchase it from a car insurance company.

Senior Consumer Analyst Penny Gusner says costs vary due to insurance companies' different rating systems, but typically it is calculated as being 5% to 6% of your comprehensive and collision coverage costs. "If your collision and comprehensive costs are $500, gap auto insurance coverage will add around $25 to your overall premium," she says.

Progressive at its website says it costs about $5 a month, or $60 a year, on average. The Insurance Information Institute says it costs about $20 a year.

How much does gap insurance cost from a lender or dealership?

The amount you pay when purchasing from a lender or dealership varies, but it’s always more than what you pay when buying from a car insurance company.

Part of the reason the coverage is more expensive at a dealership is because it is folded into the loan, and then also is billed plus interest, says Gusner.

Some dealerships were found to mark-up gap insurance costs by 300%, according to the National Consumer Law Center, which did a report on add-on services and features at dealerships.The report also found that gap insurance bought from a dealership can cost up to $1,000 in some instances.

Comparing gap insurance quotes

The best way to compare gap insurance quotes is by shopping for a car insurance policy that includes gap coverage as you shop for your new car.

First, if you already have a policy start with your current insurer. Get quotes on the cost to insure the new car you are planning on purchasing. See if your insurer offers gap or lease/loan coverage to include on the policy. Gap insurance and lease/loan coverages are similar but not the same, so look into the details of the coverage before making your final choice.

Once you have that rate quote in hand start shopping with other car insurance companies for the same coverages, limits and deductibles so you are comparing like policies. Now you will know how much to budget for your car payment and insurance, including your gap coverage. 

You may also look at who you are financing your car through to see if they offer gap insurance and compare that cost to adding it to your car insurance policy and see which is the best deal.

If you are switching companies, or your current one doesn’t offer it, you should compare rates for coverage from companies that have gap insurance or other similar options

Does gap insurance give you money for a new car?

No. Gap insurance doesn’t pay for you to get a new, replacement vehicle but instead makes sure that you don’t have to continue on a car that is a total loss. Gap insurance pays the difference between what your car is worth and what you owe on your car loan if your vehicle is stolen or totaled. Specifically, it pays the difference between the actual cash value of your car at the time of the loss and the amount owed on the vehicle to a lender at the time of accident or theft.

If you have a new car and want it replaced if totaled out, you should look into new car replacement coverage. That coverage is typically more beneficial to someone who doesn’t owe more than the worth of the vehicle. New car replacement coverage pays out (minus your deductible) what it will costs to buy a brand-new car, same make and model, as your totaled or stolen vehicle.