The minute you drive a vehicle off the dealership lot, it depreciates in value. Unfortunately, what your insurance company will pay out if your vehicle is stolen or totaled in an accident is its actual cash value – not what you may owe on the car.
Guaranteed auto (or asset) protection, also known as gap insurance, covers the “gap” between what you currently owe on your auto loan and what your insurance pays out if your vehicle is damaged, totaled or stolen – minus your deductible. Many major car insurance companies offer gap insurance – which some insurers call loan/lease coverage.
- If you have negative equity in your car, you owe more on your car loan than what the car is worth because of depreciation, a longer loan term or a small down payment.
- Gap insurance pays the difference between the balance on your vehicle loan and the current market value of your vehicle if your car is totaled or stolen and not recovered.
- Many auto insurance companies, banks, credit unions and dealerships provide gap insurance if purchased with comprehensive and collision coverages.
Where to buy gap insurance
Most large insurance companies sell gap insurance as an endorsement or add-on coverage to your vehicle’s insurance policy. Some offer it as standalone coverage, but not many.
In some cases, gap insurance may be called something different, yet it works similarly. For example, USAA gap insurance is called “Total Loss Protection” insurance. In contrast, State Farm gap insurance is called “Payoff Protector,” but it’s only available to people whose loans originate with State Farm Bank. Geico doesn’t sell gap insurance.
Gap insurance typically costs $20-40 each year. Here are a few of the bigger insurance companies offering gap insurance and its monthly cost:
American Family
American Family Auto Insurance gets high marks from its customers. It offers a variety of discounts and competitive pricing for gap insurance. To qualify for gap insurance with American Family, the loan on the vehicle must be a vehicle loan. Generally, expect to pay between $5-$15 per month for gap coverage.
Esurance
Esurance will pay up to 25% of your car’s actual cash value if it’s stolen or totaled in an accident. That’s at the high end for many insurers offering gap insurance. Get a quote over the phone or online.
Liberty Mutual
You can get gap insurance from Liberty Mutual, with an average monthly cost of $5 to $15.
Nationwide
Nationwide does not disclose the average cost for gap insurance coverage unless you get a quote and you must buy comprehensive and collision coverage to get gap coverage.
Progressive
Progressive offers the cheapest average rate of $5 per month and pays a maximum of 25% above your car’s value if it’s stolen or a complete loss after an accident. Like most other carriers, you must purchase comprehensive and collision coverage to buy gap insurance online from Progressive.
State Farm
State Farm offers Payoff Protector with every vehicle loan that originates with State Farm Bank — but only for those customers. It covers insured vehicles financed by State Farm Bank.
Travelers
You can add loan/lease gap insurance coverage to your policy for about 5% of your vehicle’s comprehensive and collision premium. Still, your vehicle is only eligible if purchased directly from a new car dealer.
Other car insurance providers where you can buy gap insurance include:
- AAA
- AIG
- Allstate
- Auto-Owners
- Chubb
- CSAA Insurance Group
- Safeco
- USAA
Check out expert recommendations on gap insurance and what it covers
How does gap car insurance work?
Gap car insurance is sometimes called “loan/lease coverage.” It covers the “gap” or difference between your car’s actual cash value (ACV) and what you still owe on your vehicle if it’s stolen or totaled. But loan/lease coverage can have more limitations, and the terms of loan/lease gap coverage will vary depending on the guidelines established by the issuing company.
When you insure a new car, you can opt for gap coverage as an add-on endorsement to your standard policy. But you also must have collision and comprehensive coverage.
In some states, auto dealerships must offer gap car insurance when you purchase your vehicle and can include it as part of your car loan. Another option is to ask your bank or credit union about gap coverage.
David Adler of Adler Insurance Group, a Denver-area insurance agency, says that gap insurance can be a lifesaver for many drivers who have not yet paid off their car or are currently leasing one.
“This insurance add-on helps reimburse a car owner when the payment for their total loss is less than the outstanding loan/lease balance. Gap insurance will cover the difference between your insurance payout and the remaining balance on your vehicle,” he says.
Standard terms for a gap insurance policy
- Gap car insurance is available through most insurance companies as an endorsement or add-on to your standard auto insurance.
- Gap insurance provides coverage when a vehicle sustains a total loss.
- Gap car insurance covers the difference between the vehicle’s actual cash value at the time of loss (less deductible) and the amount owed on the loan or lease.
- Collision and comprehensive coverages are usually required.
- Payment will not include unpaid finance fees, excess mileage, other charges, or expenses associated with the loan or lease.
- Gap car insurance typically pays out five to 45 days after the claim.
“At a certain point, the difference between what you owe and your car’s value will drop to a point where it no longer makes financial sense to have a gap policy,” he says. “So, if you forget to cancel that add-on at that point, you’ll essentially pay for insurance that you no longer need.”
FAQs: Where to buy gap insurance
Does Geico offer gap car insurance?
Geico does not offer gap insurance. If you have a Geico car insurance policy and want gap insurance, you can purchase standalone gap insurance from another insurer that sells it. Another option is to buy gap insurance from the dealership where you purchased your car, but it will likely cost more than if purchased from an insurance provider.
Can you buy standalone gap car insurance online?
You can buy standalone gap insurance independently from your standard car insurance policy. Standalone gap coverage is different from standard gap insurance where you must have comprehensive and collision coverage before your existing provider will sell you gap coverage.
Two providers that offer standalone gap coverage include:
- EasyCare Insurance. EasyCare offers standalone gap insurance, which must be acquired when purchasing your vehicle. It covers up to $50,000 of the gap between your loan or lease balance and your insurance settlement, up to 150% of your car’s value and protects your vehicle for the term of your loan up to seven years. EasyCare does charge a one-time fee (not disclosed) that is included in your vehicle’s financing.
- AutoPay Insurance. AutoPay standalone gap waivers cover vehicles valued at up to $100,000. The company offers terms of up to 84 months and losses of up to $50,000. AutoPay gap also covers the value of your vehicle up to 150% MSRP and your insurance deductible up to $1,000.
How much is gap insurance?
The Insurance Information Institute says gap insurance adds about $20 a year to your annual premium. The more expensive your vehicle, the more you’ll pay in gap insurance. And how much you pay for gap insurance depends on where you buy it – it is cheaper to buy gap insurance online from an insurance carrier than from a bank or dealership.
“It is worth keeping in mind that gap insurance is an added expense that is not advertised in the sticker price, on the original auto insurance quote or the initial loan quote from a bank/lender,” says Benjamin Bruinekool, principal at Western Michigan Insurance Agency.
“It’s something that is deemed an ‘upsell’ when sitting with the finance manager at a dealership or when signing papers with the bank and can often catch buyers off guard if they are not familiar.”
According to consumer advocacy groups, if you buy gap insurance from a dealership, you may have a hefty markup price. Some dealerships mark up the cost of gap insurance by about 150%. Thirty-eight dealers in one analysis were found to hike the price of gap insurance by an average of 300%, according to a National Consumer Law Center report.
Can I buy gap car insurance online?
Yes. If a company offers standard car insurance online, you’ll likely be able to find gap insurance as well.
When should you buy gap insurance?
If you believe you’ll be underwater and owe more on your car loan than the car is worth when you purchase your vehicle, check for gap insurance in the early months so you don’t miss out.
Can you buy gap insurance at any time?
You usually can buy gap coverage for a car as long as you still have a lien on the vehicle.
What is a gap insurance waiver?
A gap waiver removes your obligation to pay the difference between your car’s actual cash value, or ACV, and the remaining balance on your loan in case of a total loss. Waivers are agreements between borrowers and lenders and are often built into a loan contract or lease agreement.
What’s the difference between gap insurance and agreed-value insurance?
Agreed value insurance is a type of coverage offered by some carriers similar to gap coverage. Under these plans, you and the insurance company determine the value of your vehicle. If you file a claim, you are entitled to either the agreed-upon value of the vehicle or the full amount required to fix the car, regardless of market depreciation.
Agreed value policies are usually for classic, antique/special vehicles or those expected to appreciate rather than depreciate over time. It may not be available for your car. Insurers such as Chubb and AIG offer agreed-value insurance plans.
How is gap insurance regulated?
There are several state and federal regulations concerning gap insurance.
- Truth in Lending Act: Because gap insurance is voluntary in most states, this act specifies when finance charges can be excluded.
- State standards: Dealers can only sell gap insurance to their customers through an insurance agent. A policy must also meet each state’s requirements.
Learn more about car insurance rates by state with an interactive map
Sources
National Consumer Law Center. “Auto Add-Ons Add Up: How Dealer Discretion Drives Excessive, Inconsistent, and Discriminatory Pricing.” Accessed May 2022.
Insurance Information Institute. “Gap insurance.” Accessed May 2022.
Office of the Comptroller of the Currency. “Truth in Lending.” Accessed May 2022.
Autopay. “AutoPay standalone gap waivers.” Accessed May 2022.
EasyCare. “Guaranteed Asset Protection.” Accessed May 2022.
