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 versus only around 1% of respondents who expressed any 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.
- Gap insurance helps pay off your car loan/lease if your vehicle is stolen or totaled and you owe more than the car’s depreciated value.
- This coverage is widely available from various insurance companies, car dealers and lenders/finance companies.
- Gap insurance is a good investment if you leased your vehicle or put less than 20% down on your car purchase.
How does 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 Laura Adams, a personal finance and insurance expert in Vero Beach, Florida. “Gap insurance may also be called “loan/lease gap coverage.”
Who should buy gap insurance?
Gap insurance is frequently advised for new vehicles due to their rapid depreciation, but it’s wise to buy gap coverage for pre-owned cars as well. Keep in mind that a few insurance providers might only offer gap insurance for used cars aged less than three years.
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.
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 particular vehicle and loan.
The cost of gap insurance will depend on the anticipated maximum gap the policy would cover. Many auto insurers offer basic gap coverage as a policy add-on for as little as $20 or $30 annually. These options are a lot cheaper than purchasing gap coverage through a dealer, which can set you back several hundred dollars a year.
Adding more robust gap insurance coverage to your existing auto policy will likely increase your premium by less than $100 a year, Friedlander says.
Where to buy gap insurance
Wondering who sells gap insurance? Several sources, including insurance companies, car dealerships, and auto loan lenders offer gap coverage. 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
Gap insurance providers
Which insurance companies provide gap insurance? Many major auto insurers offer standalone gap insurance or coverage as an add-on to your existing policy, including State Farm, Nationwide, Progressive, Allstate, USAA, AAA and Esurance, 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 the list of gap insurance based on average annual and monthly rates.
| Company | Avg. Annual Rates | Avg. Monthly Rates |
|---|---|---|
| Progressive | $1,994 | $166 |
| Travelers | $1,776 | $148 |
| Auto-Owners | $1,642 | $137 |
| American Family | $1,791 | $149 |
| Nationwide | $1,684 | $140 |
| Allstate | $2,645 | $220 |
| State Farm | $1,413 | $118 |
| Mercury Insurance | $2,099 | $175 |
| Farmers | $2,760 | $230 |
| USAA | $1,189 | $99 |
| Auto Club Entreprises (AAA) | $2,006 | $167 |
| Erie Insurance | $1,230 | $103 |
Buying gap insurance online
If you don’t already have an auto insurance policy or your current insurer doesn’t offer gap coverage, you can buy gap insurance online. An online insurance provider can be a good 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,” Adams says.
Buy car insurance online: Here’s how to get auto insurance instantly
Buying gap insurance from car dealerships
The dealer you purchase your vehicle from may offer gap insurance, making for convenient one-stop shopping. However, experts advise caution here.
“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.
Buying gap insurance from lenders
You can buy gap coverage from a car loan lender or finance company, too. 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
How do I know if I have 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 how much coverage you desire. But if you want to make this insurance even more affordable, follow these tips provided by the pros:
- Request several quotes from different insurers to compare coverage offers and choose the best deal.
- 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
FAQ: Gap insurance
How much is gap insurance?
Gap insurance can be added to your current policy for $20-$30 per year.
Does Geico offer gap insurance?
Currently, Geico does not offer gap insurance.
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 the moment you take possession, so you will want coverage to kick in right away.
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, although specific insurers might impose a restricted timeframe within which coverage can be obtained.
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 within the state you live in. 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.
Check out our detailed guide on How much is gap insurance
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 August 2023.
Methodology
CarInsurance.com editors in 2023 collected rates from Quadrant Information Services for a 40-year-old male driving a Honda Accord LX for a full coverage insurance policy with limits of 100/300/100 and $500 comprehensive and collision deductibles. We analyzed 5,000,736 records, 1,467 ZIP codes and 27 insurance companies nationwide.
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Laura Longero
Executive Editor
Laura is an award-winning editor with experience in content and communications covering auto insurance and personal finance. She has written for several media outlets, including the USA Today Network. She most recently worked in the public sector for the Nevada Department of Transportation.
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John is the editorial director for CarInsurance.com, Insurance.com and Insure.com. Before joining QuinStreet, John was a deputy editor at The Wall Street Journal and had been an editor and reporter at a number of other media outlets where he covered insurance, personal finance, and technology.
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