GAP Insurance Pricing and Coverage
How much is GAP insurance? GAP insurance will cover the remaining principal on your auto loan. The average cost for GAP insurance can be as low as $20-40 a year; read on to learn how.
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Dani Best
Licensed Insurance Producer
Dani Best has been a licensed insurance producer for nearly 10 years. Dani began her insurance career in a sales role with State Farm in 2014. During her time in sales, she graduated with her Bachelors in Psychology from Capella University and is currently earning her Masters in Marriage and Family Therapy. Since 2014, Dani has held and maintains licenses in Life, Disability, Property, and Casualt...
Licensed Insurance Producer
UPDATED: Jul 8, 2023
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Our partnerships don’t influence our content. Our opinions are our own. To compare quotes from top car companies please enter your ZIP code above to use the free quote tool. The more quotes you compare, the more chances to save.
Editorial Guidelines: We are a free online resource for anyone interested in learning more about auto insurance. Our goal is to be an objective, third-party resource for everything auto insurance related. We update our site regularly, and all content is reviewed by auto insurance experts.
UPDATED: Jul 8, 2023
It’s all about you. We want to help you make the right coverage choices.
Advertiser Disclosure: We strive to help you make confident car insurance decisions. Comparison shopping should be easy. We are not affiliated with any one car insurance company and cannot guarantee quotes from any single company.
Our partnerships don’t influence our content. Our opinions are our own. To compare quotes from top car companies please enter your ZIP code above to use the free quote tool. The more quotes you compare, the more chances to save.
On This Page
- GAP insurance rates from insurance companies are cheaper than buying it from a dealership or loan provider, which typically charges $500 to $700
- When bundled with other insurance policies, GAP insurance typically costs between $20 and $40 a year
- If you are leasing a vehicle, you will be required to purchase GAP insurance by your lender
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.
Case Studies: Illustrating the Benefits of GAP Insurance
Case Study 1: John’s Auto Loan
John recently purchased a new car for $30,000 and financed it with an auto loan. After a few months of making payments, John’s remaining loan balance is $25,000. Unfortunately, his car is stolen and not recovered. John’s insurance pays $20,000 for the car, but he still owes $25,000. Luckily, GAP insurance covers the $5,000 difference, relieving John of the burden.
Case Study 2: Sarah’s Leased Vehicle
Sarah leased a new car and opted for GAP insurance as it was required by the leasing company. A year into the lease, Sarah gets into an accident, and her car is declared a total loss. The actual cash value of the vehicle is determined to be $15,000, but Sarah’s remaining lease obligations amount to $18,000. Without GAP insurance, Sarah would have been responsible for paying the $3,000 difference.
Case Study 3: Mark’s Loan-to-Value Ratio
Mark purchased a used car and obtained an auto loan to finance it. Over time, Mark has diligently made payments on his loan, reducing the outstanding balance. At the same time, the value of his car has also depreciated. Mark owes $12,000 on his loan, but the actual cash value of his car is only $10,000. Mark’s loan balance is lower than the vehicle’s value, so he decides against GAP coverage. His regular insurance policy will suffice for any potential losses.
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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.
Frequently Asked Questions
How much is GAP insurance?
GAP insurance will cover the remaining principal on your auto loan. The average cost for GAP insurance can be as low as $20-40 a year.
How does GAP insurance work?
GAP insurance, which stands for guaranteed asset protection insurance, covers the difference between the actual cash value of your vehicle and the remaining balance on your auto loan if the car is stolen or totaled.
Do I have to buy GAP insurance?
If you are leasing a car, GAP insurance is typically required. If you plan on buying the vehicle, it is advisable to purchase GAP insurance if you owe more on your loan than the actual cash value of the vehicle.
Where can I get GAP insurance?
You can buy GAP insurance from car dealerships, banks or credit unions, lenders, car insurance companies, or standalone GAP insurance companies. Car insurance companies often offer the most affordable rates for GAP insurance.
Is GAP insurance necessary if I own my car outright?
If you own your car outright and do not owe more on your loan than the actual cash value of the vehicle, GAP coverage is unnecessary.
How can I find the cheapest GAP insurance?
Comparing quotes from different car insurance companies is a good way to find the cheapest GAP insurance. Contact your current car insurance company to inquire if they offer GAP coverage.
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Enter your ZIP code below to view companies that have cheap car insurance rates.
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Dani Best
Licensed Insurance Producer
Dani Best has been a licensed insurance producer for nearly 10 years. Dani began her insurance career in a sales role with State Farm in 2014. During her time in sales, she graduated with her Bachelors in Psychology from Capella University and is currently earning her Masters in Marriage and Family Therapy. Since 2014, Dani has held and maintains licenses in Life, Disability, Property, and Casualt...
Licensed Insurance Producer
Editorial Guidelines: We are a free online resource for anyone interested in learning more about auto insurance. Our goal is to be an objective, third-party resource for everything auto insurance related. We update our site regularly, and all content is reviewed by auto insurance experts.