Gap (guaranteed asset protection) insurance is more popular than you may think. In fact, per a recent University of Michigan study, it was chosen by consumers in approximately 39% of vehicle financing deals. More than nine in 10 of those who purchased gap insurance expressed satisfaction with their decision, compared to only 1% of respondents who expressed discontent with their purchase.
“This type of coverage is typically only available if you are the original loan or leaseholder on a new vehicle, but you may be able to obtain it for certain used vehicles,” says Mark Friedlander, director of corporate communications for the Insurance Information Institute (III).
Gap coverage can be an important safety net if you owe more on the original loan or lease than the car’s depreciated value. You may be able to purchase gap insurance through the dealership where you purchased the vehicle. However, it may be a better and cheaper option to see if your current insurance provider can add it on to your existing policy.
Read on to learn how gap insurance works, good candidates for purchasing gap insurance, where to buy gap insurance, who offers gap insurance, how to buy gap insurance online and how to save on gap insurance.
- If your vehicle is totaled or stolen, gap insurance helps to pay off the remaining balance of your loan or lease.
- Gap insurance may be a good purchase if you made less than a 20% down payment or financed your vehicle for over 60 months.
- This coverage is widely available from various insurance companies, car dealers, and lenders/finance companies.
Where to buy stand-alone gap insurance
Several sources offer gap coverage, including insurance companies, car dealerships and auto loan lenders. You may also acquire gap coverage from a bank, credit union or specialized provider.
Check out expert recommendations on gap insurance and what it covers
Your go-to list for gap insurance companies
As you seek out gap insurance providers, you can start with your auto insurance company. Many major auto insurers, including State Farm, Nationwide, Progressive, Allstate, USAA, AAA and Esurance, offer stand-alone gap insurance or coverage as an add-on to your existing policy, but not all do. You may need to shop around.
“You will reap significant savings by adding gap insurance to your current auto insurance policy versus purchasing separate coverage from a car dealer or financing company,” Friedlander says.
Below is a list of insurance providers that offer gap coverage.
| Company | Premium with gap insurance | Premium without gap insurance | Cost of gap insurance |
|---|---|---|---|
| Sentry Insurance | $5,980 | $5,956 | $24 |
| Safety Insurance | $1,797 | $1,772 | $25 |
| Iowa Farm Bureau | $2,543 | $2,517 | $26 |
| Mercury Insurance | $3,004 | $2,962 | $41 |
| State Farm | $1,869 | $1,822 | $46 |
| Travelers | $2,026 | $1,977 | $49 |
| Progressive | $2,692 | $2,640 | $53 |
| American Family | $2,056 | $1,998 | $58 |
| Auto-Owners | $1,912 | $1,850 | $62 |
| Nationwide | $2,183 | $2,115 | $69 |
| Mapfre Insurance | $1,493 | $1,424 | $70 |
| The Hanover | $1,831 | $1,760 | $71 |
| Vermont Mutual | $1,424 | $1,353 | $71 |
| Auto Club Group – ACG (AAA) | $1,505 | $1,423 | $82 |
| Auto Club Enterprises (AAA) | $2,483 | $2,394 | $89 |
| Kemper | $2,622 | $2,531 | $91 |
| Frankenmuth Insurance | $1,503 | $1,402 | $101 |
| Shelter Insurance | $2,480 | $2,366 | $114 |
| Allstate | $4,066 | $3,947 | $119 |
| The Hartford | $2,891 | $2,770 | $121 |
| Amica | $3,189 | $3,063 | $127 |
| Farmers | $4,092 | $3,928 | $163 |
| CSAA Insurance (AAA) | $6,302 | $6,134 | $168 |
| Erie Insurance | $1,628 | $1,390 | $238 |
| USAA* | $1,047 | $996 | $51 |
*USAA is only available to military community members and their families.
How to buy gap insurance online
You can buy gap insurance online if you do not already have an auto insurance policy or your current insurer doesn’t offer gap coverage. An online insurance provider can be an effective way to request quotes quickly and find an affordable policy.
“Requesting and comparing multiple quotes from an online site may be the most convenient way to find a policy at the lowest price,” says Laura Adams, a personal finance and insurance expert in Vero Beach, Florida.
How to buy gap insurance from car dealerships
The dealer you purchase your vehicle from may offer gap insurance, making for convenient one-stop shopping. However, it will cost more than adding it to an existing insurance policy.
“If you purchase gap coverage from a car dealer, you may pay up to five to 10 times more for your annual premium than you would if you purchase from your existing auto insurer,” Friedlander says.
How to get gap insurance from lenders
You can also buy gap coverage from a car loan lender or finance company. But Friedlander says—as with car dealerships—you may pay more via this route than if you purchased coverage from your current auto insurance company.
Learn more about is it cheaper to buy car insurance online or through an agent
Real-world insights: Gap insurance experiences shared on Reddit
The pros and cons of buying gap insurance are hotly debated in online forums. Many question the value of paying for the coverage and whether getting it through your current insurance provider or a dealership makes more sense.
While arguments can be made for both sides, people who did get their cars totaled in a wreck say it was well worth the added cost. Reddit readers also questioned whether gap insurance should be obtained through the dealership or as an add-on to an existing auto policy.
Adding it to your policy will usually be the cheapest option, although you may have to swallow the cost of the deductible, which means you will still be out some money. Policies offered through dealerships will often pay the insurance deductible and may have higher payout ratios.
Case studies: User experiences from Reddit
A $9,300 hit:
“We had an Escalade and didn’t even own it for a year when the accident happened. We will recoup our money [through] our attorney, but the issue is we are on the hook for the $9,300 until then. Our finance company was nice enough to drop the loan to zero interest, but it still sucks that we didn’t have gap insurance. We don’t even remember it being offered when we purchased the car. It was an expensive mistake to learn!”
Gap coverage paid off twice:
“I had to use it twice in my life. I was run off the road once in a bad rainstorm. I was 18, got swiped, and basically ended up flipping the car because I went from pavement right into mud. Flipped over a few times and hit a tree.
A few years later, another rainy day in the south. Someone swerved on a merging lane, spun out, missed three lanes of traffic, and hit my new Subaru head on. It was supposed to be my first road trip/vacation as an adult. I still deal with the pain from it. Either way, hadn’t even made a first payment on it and it was totaled.”
Case study: Difficulty finding stand-alone gap insurance provider
Another Reddit user who has car insurance through Geico expressed frustration in trying to get gap insurance.
“I financed a new car yesterday and the gap insurance was going to be $1,200 total. I elected not to take it. I’m a Geico customer with a good rate on regular auto insurance and they don’t offer gap coverage (at least not in my ZIP), so I am specifically seeking a company that I can buy it from as a standalone product. So far, I’ve tried Progressive, Allstate and Nationwide, and none of the call centers could do so.”
Trying to find a standalone gap insurance provider after purchasing a vehicle can be more work. And as the poster noted, not all insurance companies offer it as an option.
You may want to use it as an opportunity to compare insurance providers and get quotes.
People also ask
When does gap insurance not make sense?
“Those who own a vehicle outright or made a large down payment likely do not need gap insurance, as a total loss payout would cover what’s owed,” says John Crist, founder of Prestizia Insurance. “Gap insurance also usually does not make sense for older vehicles where depreciation has significantly reduced the value. The premiums may end up costing more than the payout.”
Another case would be if your vehicle is of a make and model that has very little depreciation in its initial years. You may want to check Kelly Blue Book or the National Automobile Dealers Association guide to see how much your car is worth. If your loan balance is less than the vehicle’s value, skipping gap insurance makes sense.
What primary insurance coverage must I have if I want to carry gap insurance?
You must have collision and comprehensive coverage in order to have gap insurance. If your insurer totals your vehicle by a covered peril like an accident, theft, fire, flood, tornado, vandalism or hurricane, the insurer will pay you the actual cash value for your car if you have comprehensive and collision coverage. This amount is often considerably less than what you still owe on your loan or due for a lease payoff.
Can I buy gap insurance by itself?
Yes, in most cases, you can buy gap insurance separately from your standard auto insurance coverage.
Is gap insurance available for used cars?
Yes, gap insurance is available for used cars. Generally, gap insurance is only available for a used vehicle if it is relatively expensive or less than a few years old.
Who should buy gap insurance?
Gap insurance is frequently advised for new vehicles due to their rapid depreciation, but it’s also wise to buy gap coverage for pre-owned cars if they’re worth a great deal. Remember that some providers might only offer gap insurance for used cars under three years old.
Good candidates for gap insurance policies include consumers who:
- Made less than a 20% down payment on a vehicle purchase.
- Finance a purchase for 60 months or longer.
- Leased the vehicle.
- Rolled over negative equity from an old car loan into a new car loan.
- Bought a car that depreciates faster than the average.
How does stand-alone gap car insurance work?
Gap (guaranteed asset protection) insurance covers the difference between your car’s actual cash value and the amount you owe on your loan. This coverage kicks in if your car is totaled or stolen and you owe more than the vehicle’s depreciated value.
“In other words, it protects you when you are upside down on a deal and owe more than your car is worth,” says Adams. “Gap insurance may also be called “loan/lease gap coverage.”
After an accident that totals the vehicle, your gap insurance policy will help pay off your loan. Without gap insurance, you might be stuck with a loan balance after your vehicle is totaled.
Learn more in detail about the cost of gap insurance
Standard terms and costs for a gap insurance policy
Gap insurance coverage is typically optional, with flexible terms that can be written to cover your vehicle and loan.
The cost of gap insurance will depend on the anticipated maximum gap the policy would cover. The average annual cost of gap insurance in the U.S. is $89, which is a little over $7 per month. In general, it’s cheaper to purchase gap insurance from your car insurance company than it is through a dealer.
Comparing options from stand-alone gap insurance providers
It’s crucial to compare costs among gap insurance providers carefully.
“Try to get at least three to four quotes from different insurers. You’ll be surprised at the price differences. Sometimes dealers markup gap insurance by 200 to 300 percent compared to independent providers,” says personal finance expert Andrew Lokenauth. “And don’t forget to check if your regular auto insurance company offers gap coverage – they might give you a sweet discount.”
When considering gap insurance options from different providers, there are more factors to consider than just price. Ask questions about coverage limits, how long the policy will remain in effect, and cancellation policies. You don’t want to keep paying for gap insurance if you no longer owe more than the vehicle’s assessed value.
“Understanding gap insurance policy specifics is critical,” says Steven Kibbel, a certified financial planner. “Some policies cap the maximum payout, which could leave you covering the rest of your loan out of pocket if your car is totaled. Coverage duration is another factor – some policies only cover the first few years of a loan, leaving you vulnerable later. Exclusions and limitations can also be tricky, such as mileage restrictions or specific types of damage that are not covered. Reading the fine print matters here.”
Dennis Shirshikov, a professor of finance and economics at City University of New York/Queens College, stresses the importance of understanding what happens if you want to cancel the policy.
“Ideally, you want to avoid penalties or fees if you need to terminate the policy prematurely,” he says. “Having extra flexibility in a gap insurance policy allows you to adjust coverage as your circumstances change, such as refinancing your car loan or paying it off early.”
Also, determine if the gap policy will cover your insurance deductible if the vehicle is written off or stolen.
Key terms: Understanding gap insuranceGap-based rating
This is a pricing method where the cost of gap insurance is determined by the difference between the vehicle’s value and the loan amount – the “gap.” A larger gap often results in higher premiums. Understanding this can help you take the necessary steps, such as making a larger down payment, to decrease the gap and potentially lower your insurance costs.
Actual cash value (ACV)
This is the market value of your car at the time of loss after factoring in depreciation. Gap insurance covers the difference between the ACV and what you owe on your loan. Knowing your vehicle’s ACV helps you understand how much you might need from gap insurance in case of a total loss.
Depreciation rate
This is the rate at which your vehicle loses value over time. Cars tend to depreciate quickly, especially newer vehicles, which can increase the gap between the auto’s value and the loan amount. High depreciation rates make gap insurance more critical. For instance, luxury vehicles often have high depreciation rates, emphasizing the need for adequate gap coverage.
Lease-end gap
This refers to the potential financial obligation at the end of your lease if the vehicle’s value is less than the residual value agreed upon in the lease contract. Gap insurance can cover this difference if the vehicle is totaled or stolen before the lease ends, protecting you from having to pay out-of-pocket.
Extended gap insurance
This type of policy offers additional coverage beyond standard gap insurance, sometimes covering deductible costs or providing funds toward a new vehicle purchase. It’s beneficial if you want extra protection, but evaluating whether the higher premium aligns with your financial needs is crucial.
How do I know if I have stand-alone gap insurance?
Before hunting and paying for separate gap insurance coverage, check your existing vehicle policy to see if this protection is already in place. If in doubt, contact your insurer or agent directly. It might be called something other than gap coverage, so ask your insurance company if you have questions.
“The declarations page of your auto policy – typically found at the front of the policy – describes all the coverages that are included,” Friedlander says.
How to save on gap insurance
Gap coverage is relatively affordable, depending on where you purchase it and your desired coverage. But if you want to make this insurance even more affordable, follow these tips provided by the pros:
- Request several quotes from the best gap insurance companies to compare coverage offers and choose the right policy for your situation.
- Explore buying from your current insurer.
- Choose a reputable provider.
- Eliminate the need to purchase gap coverage. You may not even need gap insurance if you put down 20% or more when buying your vehicle.
- Only buy as much coverage as you need.
Check out our detailed guide on how to cancel your gap insurance
How to choose the best stand-alone gap insurance provider
To help you pick the ideal insurance carrier, consider your current and future needs and vulnerabilities carefully.
“Consider your loan terms and interest rate, as well as your down payment. The larger that is, the less gap insurance you might need,” Lokenauth says. “Also, look closely at your car’s depreciation rate; some brands lose value faster than others.”
Take the necessary time to research different providers, too.
“Look for companies with solid reputations, good customer reviews and financial stability,” Kibbel says. “A provider’s history with claims can give you an idea of how reliable they will be when you need them. Don’t forget that reputation often matters as much as price, too. When comparing quotes, don’t just focus on the lowest cost – consider what’s included in the policy. A low premium won’t mean much if the coverage falls short. Discounts are great, but the real value lies in what you are getting for your money.”
Remember: Not all gap insurance policies are created equal.
“Cheaper policies might offer less comprehensive coverage or have restrictive terms,” says Shirshikov. “It’s essential to balance the cost with the coverage provided, ensuring the policy meets your specific needs.”
FAQ: Gap insurance
How much is gap insurance?
The average gap insurance premium is $89 per year. However, the actual amount you will pay for gap insurance varies based on your insurance company, location, age, and vehicle.
Does Geico offer gap insurance?
Currently, Geico does not offer gap insurance.
Can you buy gap insurance at any time?
You can usually purchase gap insurance for a new or used vehicle as long as the loan or lease remains unpaid. However, specific insurers might impose a restricted timeframe within which coverage can be obtained.
Does Progressive offer gap insurance?
Progressive provides “loan/lease payoff protection” in most states, which resembles coverage yet features several distinct nuances. Among the notable distinctions is the constraint on the payout from loan/lease payoff coverage, capped at 25% of your car’s value. However, the precise cap fluctuates depending on the specific state regulations.
Furthermore, this coverage does not encompass supplementary expenses linked to a loan or lease, such as financial fees and extra mileage costs.
When should you buy gap insurance?
If you are planning to get gap insurance, it’s best acquired at the time of purchase of your vehicle or as soon as possible after buying a new car. That’s because a new vehicle begins to lose value when you take possession, so you will want coverage to kick in immediately.
What is a gap insurance waiver?
A gap waiver, also known as a gap addendum, is a supplement you can add to your auto loan or lease that serves as a debt cancellation agreement. This agreement absolves you from paying the difference between what you owe on the vehicle and its worth if the car is declared a total loss.
Some lenders require gap waivers because they prefer the guaranteed upfront payment to the potentially time-consuming effort of recovering the total payoff amount from you, the borrower, especially if you are short on cash after a major accident.
How is gap insurance regulated?
Gap insurance is regulated like every other auto insurance product provided in your state. Your state’s Department of Insurance supervises this process. Note that many states limit how much can be charged for gap waivers. Contact your state consumer protection agency or attorney general’s office for more information.
What’s the difference between gap insurance and agreed-value insurance?
Gap insurance covers the difference between the remaining loan balance and your vehicle’s value. Agreed-value insurance covers a set amount for the car’s value – agreed upon by you and your insurance company when you purchase your auto policy – and nothing more. An agreed-value policy assigns a particular value to a specific vehicle, such as a classic car or antique vehicle, regardless of depreciation.
Final thoughts: Gap insurance providers
Gap coverage is vital as it provides a financial safety net if your vehicle is totaled or stolen and you owe more on your loan or lease than the car’s depreciated value. It bridges the gap between the insurance payout and the outstanding balance, preventing you from bearing the financial burden. As with any insurance coverage, don’t skimp – go with a trustworthy provider.
Resources & Methodology
Sources
- Federal Reserve. “Consumers and GAP protection on vehicle financing contracts.” Accessed December 2024.
- Kelley Blue Book. “How to beat car depreciation.” Accessed December 2024.
- National Automobile Dealers Association. “Consumers and Guaranteed Asset Protection on Vehicle Loans and Sales-Financing Contracts.” Accessed December 2024.
- Consumer Financial Protection Bureau. “What is Guaranteed Asset Protection insurance?” Accessed December 2024.
Methodology
CarInsurance.com editors in 2024 collected rates from Quadrant Information Services for a 40-year-old male and female driving a 2023 Honda Accord LX with a good insurance score and no violation on record for a full coverage insurance policy with limits 100/300/100 and $500 comprehensive and collision deductible. We analyzed 5,073,544 records, 1,468 ZIP codes and 138 insurance companies nationwide.
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