GAP Insurance Pricing and Coverage

If you are about to buy a new car, you might have been advised to purchase guaranteed asset protection or GAP insurance. While you definitely want to have the proper insurance in place for your vehicle, you admit that you are not exactly sure what GAP insurance is and how it relates to understanding your car insurance policy. 

No worries, you have come to the right place. Keep reading to learn more about what GAP insurance is, who needs it, and its coverage and pricing.

How much is GAP insurance?

Here is some excellent news — GAP insurance is not that expensive, all things considered. The average cost for GAP insurance is usually a few dollars a month. This equates to around $20 to $40 each year, and it can be added to your existing collision and comprehensive policies. 

In general, you can purchase GAP coverage from your car insurance company or through your dealership or loan provider. However, if you buy it from a dealership or loan provider, the price of GAP insurance will be much higher, averaging $500 to $700.

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How does GAP insurance work?

To understand what type of GAP insurance coverage you would qualify for you, let’s back up a bit and explain what GAP insurance is. GAP insurance is an acronym for guaranteed asset protection insurance. It is meant to cover the difference between how much your new car is worth and the remaining principal on your auto loan if the vehicle is stolen or totaled. 

Imagine that the new car you are about to buy will cost $25,000, an amount you plan to finance with an auto loan. After paying on the loan for a while, you will have a remaining principal of $20,000 or so, but because of vehicle depreciation, your car is now worth only about $15,000. 

If something were to happen and the car was totaled or stolen, your regular insurance policy will cover only the actual cash value of your vehicle, which is $15,000. However, the bank will still hold you liable for paying back the amount left on your loan, which in the above example is $20,000. 

In other words, you will be on the hook for $5,000 for a car you can no longer drive. But if you purchase GAP insurance, your car insurance company will cover the deficit between the actual cash value and the remaining balance on your loan, minus your deductible.

Do I have to buy GAP insurance?

In most cases, if you are leasing a car, you will be required to purchase a GAP insurance policy. If you plan on buying the vehicle, buying GAP insurance is advisable in the following situations:

• If you purchased a new car but paid with a small down payment, you should look into GAP coverage.
• If you took out a long-term loan for 60 months or longer, you should consider investing in GAP insurance.
• The modern luxury car depreciation rate is especially fast, notes Hagerty. So if you take out a loan for a fancy sports car that depreciates quickly, consider adding GAP insurance to your policy.
• Finally, GAP insurance is helpful if you have any rolled-over negative equity from an old car loan.

But if you own your car outright, GAP coverage is unnecessary. In addition, if you owe less on your loan than the actual cash value of the vehicle, you likely do not need GAP coverage.

Where can I get GAP insurance?

You can usually buy GAP insurance from car dealerships, banks, or credit unions, lenders, car insurance companies, or standalone GAP insurance companies. 

Most of the time, your cheapest GAP insurance quotes come from car insurance companies. So if you have a current car insurance company, contacting your agent before purchasing the new car is a good idea. This way, you can learn if your insurance company offers it. 

Final Thoughts: How much is GAP insurance?

If you decide you need GAP insurance coverage, it should cost less through a car insurance company than through a dealership, lender, bank, or even most standalone companies. The average yearly GAP insurance rates should range from $20 to $40 a year. It can offer invaluable peace of mind knowing that if your car is later totaled or stolen, you will not be responsible for a portion of your outstanding loan.

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