GAP insurance is an optional coverage that you can add to your policy for an extra charge. In fact, insurance companies pay only the actual cash value of your car if it was totaled, which is its price in the used car market.
In general, if you took out a loan and did not put a lot of money down, you may end up paying for a car that you no longer drive. That’s where GAP insurance jumps in. It repays the difference between the amount left on your loan and the actual cash value of your totaled vehicle.
Read on to see how it works in more detail and which insurance companies offer affordable gap coverage.
How Does GAP Insurance Work?
When you buy a car from a lender, your loan will be equal to the price of the new vehicle + taxes and other miscellaneous expenses. For example, let’s say that the total amount on a 5-year loan after you put some money down is $25,000.
Now, imagine your car got wrecked after two years, and the insurance company declares it a total loss. How much will the payout be? Surely not the full $25,000.
That said, without GAP insurance coverage, the company will only pay you the amount equivalent to the value of a used car that’s the same age, make, and model. This is known as the Actual Cash Value (ACV) — and they are not going to be generous!
Based on our experience, you will likely get around $12,000 for your vehicle. So if the loan amount you’ve paid equals $10,000, there is still $3,000 left on your car loan after the insurance company reimburses you — auto GAP insurance covers that. Moreover, a deductible may apply.
Total loan = $25,000
Amount paid = $10,000
Actual cash value of the totaled vehicle = $12,000
GAP insurance payout = $25,000 – $12,000 – $10,000 = $3,000
FUN FACT: Did you know that GAP insurance does not refer to any actual “gap”? It is an abbreviation for Guaranteed Asset Protection.
When Do You Need Car GAP Insurance?
Remember, if it’s for your car, this insurance is an optional add-on to your policy. As a matter of fact, this means it costs extra and that you should undoubtedly decline it when you don’t need it. But when do you really need it?
Obviously, if you didn’t get a loan for your car, you will not need GAP insurance, and this article is not for you. So, better go straight to our reviews to find the best car insurance in the market and see which companies offer New Car Replacement coverage.
Additionally, if the amount on your loan is smaller than the ACV of your car, you won’t need gap auto insurance. Namely, that happens in these two situations:
· You put a significant amount of money down when you got the loan.
· Your loan period is nearing the end, and you’ve paid out most of your loan.
In other instances, it’s wise to purchase GAP insurance. Furthermore, sometimes it will be mandatory to get this coverage. For instance, specific loan or lease providers will require you to buy GAP insurance, either as a part of the deal or separately.
Then again, in some situations, you may want to cancel your GAP insurance and seek a refund. More specifically, this can happen if you are refinancing your vehicle and you think that the ACV of your car has exceeded the amount left on your loan.
How to Calculate if You Need GAP Insurance
First, you will need to know how much you’ll have left on your loan every trimester. Next, you can use an online calculator to get a rough idea of how much your car model will depreciate.
Once there’s no negative difference between the amount left on your loan and the value of your vehicle, you won’t need GAP insurance anymore.
How Much Does the GAP Insurance Cost?
When you add the coverage to your auto insurance policy, gap insurance costs about $3 a month. Moreover, the standard cost of GAP insurance is usually equal to 5%–6% of the amount you’re paying for comprehensive and collision coverage.
In other words, if your yearly premium is $1,200, you will spend from $60 to $72 annually. The amount may not seem like a lot, but it piles up over time.
However, if you get gap insurance through a dealership, the price is different, as lenders and dealerships charge the highest rates for this policy. That said, you would pay $500–$700.
Like with other policy add-ons, the price of GAP coverage varies significantly based on your profile and the insurance company. That’s why it’s essential to negotiate and shop around. You may end up saving a couple of hundred dollars for the entire loan period.
Who Offers Gap Insurance for Cars?
There are many US insurance companies that you can buy GAP insurance from. So, check the complete list below to see which companies offer this coverage. Also, to make sure you’re getting the best car insurance, we included our review scores in the table.
|Company Name||GAP Insurance||Carsurance Score|
|21st Century||In Select States Only||*Pending Review|
|Allied P&C Insurance||Y||*Pending Review|
|AMCO Insurance Co.||Y||*Pending Review|
|American National||Y||*Pending Review|
|Amica Mutual||Y||Top 3|
|Charter Indemnity Co.||N||*Pending Review|
|Coast National Insurance Co.||N||*Pending Review|
|Economy Preferred Insurance Co.||N||*Pending Review|
|Encompass Indemnity Co.||Y||*Pending Review|
|Enumclaw P&C Insurance Co.||Y||*Pending Review|
|Garrison P&C Insurance Co.||N||*Pending Review|
|Grange Insurance Assn.||Y||*Pending Review|
|Hallmark Insurance Co.||N||*Pending Review|
|The Hartford (AARP)||Y||Very Good|
|IDS Property Casualty||N||*Pending Review|
|Integon Preferred Insurance Co.||N||*Pending Review|
|MAPFRE Insurance||Y||*Pending Review|
|Metropolitan Casualty Insurance Co.||Y||*Pending Review|
|Mid-Century Insurance Co.||In Select States Only||*Pending Review|
|Middlesex Insurance Co.||N||*Pending Review|
|Mutual of Enumclaw Insurance Co.||Y||*Pending Review|
|Omni Insurance Co.||N||*Pending Review|
|Pacific Star Insurance Co.||N||*Pending Review|
|Peak P&C Insurance Corp||N||*Pending Review|
|Sentinel Insurance Co. Ltd||Y||*Pending Review|
|State Farm||N||Very Good|
|Trumbull Insurance Co.||N||*Pending Review|
|Twin City Fire Insurance Co.||In Select States Only||*Pending Review|
|Unitrin Auto & Home Insurance Co.||Y||*Pending Review|
However, there may be some specific conditions or additional info you should know about a company that offers gap insurance. For instance, even though Progressive offers GAP insurance, that is only up to 25% of your car’s value. In addition, the exact limit varies by state.
We have also seen in the table above that some companies offer this coverage in select states only.
That’s why, when considering a company for gap insurance, make sure you go through all the conditions thoroughly, and then you can choose the one that suits you best.
Cheapest GAP Insurance Companies
If you’re looking for the most affordable GAP insurance companies, we’ve got you covered. So, see the prices below of some of the cheapest insurers offering this coverage.
Things to Know About GAP Coverage Insurance
You don’t need GAP insurance if you have new car replacement coverage.
New car replacement is a protection plan very similar to GAP insurance. So, if you buy this coverage and total your vehicle, an insurance company will replace it with a brand new car that’s the same make and model.
Many manufacturers offer this coverage for vehicles less than three years old, while Travelers provides up to five years. Namely, the two major differences between these two coverages are that GAP insurance is tied to a loan, and it can be utilized for used vehicles too.
Gap insurance doesn’t cover deductible costs.
Your GAP insurance refund will equal the amount left on your loan minus your deductible. For example, if there is $3,000 left on your loan after your vehicle is totaled, and your deductible is $500, you will receive $2,500.
GAP auto insurance does not cover engine malfunctions, fender benders, and similar accidents.
Remember, the payout for this coverage is triggered only if a vehicle is totaled in a covered accident. That said, collision and comprehensive coverages pay for any damage to your car, and mechanical protection coverage pays for engine failure.
GAP Insurance does not pay any medical expenses, including death benefits.
GAP insurance only provides a payout if your vehicle is totaled, as the gap insurance definition proposes. Therefore, any expenses related to bodily injury or lost wages are not covered.
Moreover, many people wonder whether gap insurance can cover funeral costs. As we’ve mentioned, that’s not covered by this insurance.
GAP insurance covers theft.
As we know, vehicle theft has increased recently in the US. If your vehicle is stolen and the authorities cannot recover it, you will receive a GAP coverage payout. You’ll also receive such payout in case the car is recovered but has enough damage to total it.
GAP insurance covers negative equity.
Negative equity is synonymous with the gap between the ACV of your car and the amount left on your loan. In other words, GAP insurance pays for the negative equity on a car finance deal if the person owes more than the car’s worth at the time of the write-off.
However, if you want to cover negative equity from a previous contract, it’s best to buy an additional policy.
Whether you want to include GAP insurance in your quote or the coverage is included with the lease agreement, now you know how it works. However, it’s essential to calculate when exactly you will stop needing it so that you can cancel it and save money.
As with any other insurance coverages, the offers vary across the market. Since more than 30 companies in the US offer GAP insurance, negotiating and shopping around pays out more than ever.
People Also Ask
When does GAP insurance not pay?
GAP insurance doesn’t pay on several occasions. One of them is if your insurance isn’t fully comprehensive. It will also not pay if your primary auto insurer declines your claim or if the GAP policy has already paid out.
Another circumstance is if your GAP cover doesn’t cover commercial vehicle use. Also, it won’t pay if there isn’t a GAP insurance shortfall or in case you have stopped paying your policy.
Furthermore, in the event that the person who took the GAP coverage hasn’t got insurable risk, you failed to notify your insurance of modifications, or if you sell your car or transfer ownership, the coverage doesn’t pay.
What is GAP insurance, and how does it work after a car is totaled?
GAP insurance is a type of car insurance coverage that pays the amount left on your loan if your car is totaled.
Namely, if the actual cash value of your vehicle is $12,000, and there’s $15,000 left on your loan, you will get $3,000 minus whatever your deductible is from the insurance company.
How long does GAP insurance last?
It all depends on the deal between you and a lender/insurance company, but it usually lasts until the end of a loan.
When the actual cash value of your vehicle exceeds the amount left on the loan, it’s smart to cancel your GAP insurance. Use KBB to verify the exact worth of your car.
What is GAP insurance on a car loan?
This car insurance is optional, helping you pay off your car loan in case your car is stolen or totaled, and you owe more than the vehicle’s depreciated value.
GAP insurance is bundled in your loan deal instead of bought separately from an insurance company. Therefore, read loan deals carefully before you sign, and inquire about GAP insurance.
How do I know if I have GAP insurance?
If you are unsure whether you have gap insurance, review your vehicle purchase agreement or contact your insurer. However, in the event that you lease or finance a vehicle, don’t just assume you have to buy this coverage. This insurance can be included in a lease deal or purchased separately from an insurance company. Therefore, carefully read your loan deal before signing it and ask if GAP insurance is provided.