GAP Auto Insurance

If you owe money on a car loan, GAP car insurance will help cover your debts if your car is totaled in an accident. You can add GAP auto insurance to your existing policy or buy a standalone policy.

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UPDATED: Jul 7, 2020

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Here's what you need to know...

  • In some scenarios, your standard insurance coverage is not enough to cover a stolen or totaled car
  • Sometimes there is a disparity between what you paid for your car and what the insurance company is willing to pay
  • GAP car insurance is additional coverage that can protect you as the consumer if you find yourself in this situation

Just type your ZIP code right now into the FREE box on this page to find car insurance quotes instantly!

Why GAP Car Insurance Is Important

Young woman buying new car

Cars, especially new models, depreciate very quickly. If you buy a new car with little money down it is almost certain that you will owe more than the vehicle is worth shortly after the purchase; this is referred to as being upside down on your auto loan.

During this time period, you can be at financial risk. If your car is stolen or totaled, the insurance company will only pay what they determine to be the market value of the vehicle.

Carrying GAP coverage can help protect you from such an event. This coverage is effective for both cars that are financed as well as cars that are leased.

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How GAP Car Insurance Works

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A GAP insurance policy can be purchased through your regular auto insurance company when you get your policy. This is simply an additional option that you can add to your insurance coverage.

GAP coverage may also be called auto loan/lease protection, auto loan coverage, or some other variation of these terms.

A customer service representative at your auto insurer should be able to describe to you all the specifics of the type of GAP coverage that they offer.

If your car is stolen or destroyed, your comprehensive insurance coverage will cover the actual cash value of your car. This is the market value as determined by the insurer.

GAP coverage will kick in to cover the difference between the actual cash value and what you owe for the vehicle.

Of course, you will pay a little more for your auto insurance when you add GAP coverage. However, it can also save you a lot of money, especially when your car is newer.

Situations When GAP Car Insurance May Be Needed

GAP coverage is important any time that you may be upside down on the value of your car. Usually, the biggest risk is soon after you purchase your car. For the first year or two, you may owe more than the vehicle is worth.

Once you reach a point where you have more equity in your car than its current value, you may want to discontinue GAP coverage.

When this occurs depends on your individual situation. It is influenced by:

  • How much money you put down on your car
  • How much of your monthly payments are going toward your loan’s principal
  • The rate at which your vehicle depreciates

If you are not sure how to determine your car’s value, this article from CNN may help.

You can plan your car purchase by understanding how, and why, your car will depreciate. Check out this article from Forbes to see some of the cars that depreciate fastest and why.

GAP coverage is not only used when you own your car. In fact, this coverage may also be vital for those who lease their vehicles.

Some dealers may even make GAP coverage mandatory on leased vehicles. This protects the dealer and ensures that they will receive everything that they are owned in the event that the car is stolen or destroyed.

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Benefits of GAP Car Insurance

The benefits of GAP coverage may seem obvious; you are protected from being responsible for what may amount to thousands of dollars due to the discrepancy between what your car is worth and what the insurer is willing to pay.

This is especially crucial for drivers who are on a tight budget and don’t have an emergency fund or a lot of spare savings. It can be difficult enough paying a deductible.

GAP car insurance ensures that you will never be surprised with having to pay much more than you would expect.

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Potential Drawbacks

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GAP coverage is not for everyone, and many drivers choose not to carry it. The main reason that some people may avoid this coverage is because of the cost.

GAP coverage adds an additional cost to your overall auto insurance policy. For some drivers, this cost is not worth the potential benefit the coverage provides.

GAP coverage may not cover everything that you think. For more about what GAP coverage does and doesn’t cover, check out this article from Fox Business.

GAP insurance also doesn’t make sense for drivers who have put down a significant down payment or who have paid off a large portion of their car loan.

In these cases, there is unlikely to be a gap between what the insurer will pay for the vehicle and what is owed. In such an instance, this coverage would be a waste of money.

You can avoid the need for GAP coverage when you purchase a car if you are mindful of the vehicle’s changing value and make sure that you put enough money down and make large enough monthly payments to ensure that you do not end up upside down on your loan.

If you choose to lease a car, you may have no choice but to carry GAP coverage. This may be mandated by the dealership.

Finding Costs and Getting the Best Deal on GAP car insurance

Finding GAP coverage can be as easy as simply contacting your current insurance provider to add this feature to your policy. Most major auto insurers offer this coverage as part of their portfolio of services.

If you are not sure of how to identify companies to solicit auto insurance quotes from, try visiting an impartial consumer review site. You can go to A.M. Best’s website and enter your state to find a list of available insurers and their ratings.

When you are quoting with multiple insurers be sure that the coverage and terms you are evaluating are comparable from all companies. This is the best way to understand the true value of the quotes that you are receiving.

Finally, make your final decision based on all factors, not just price.

You will want to evaluate the quality of the insurance company and the policy, the insurer’s financial strength, their customer service, and the convenience of doing business with them.

Finding a new insurer may mean forging a long-term partnership. You will want to be sure to do the research to make sure you make the best decision for your needs.

GAP coverage may be a smart way for you to protect yourself from unexpected expenses, especially if you have a new car or are leasing a vehicle. Look into this important coverage as part of your overall auto insurance policy today to enhance your peace of mind!

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