Chris Tepedino is a feature writer that has written extensively about auto insurance for numerous websites. He has a college degree in communication from the University of Tennessee and has experience reporting, researching investigative pieces, and crafting detailed, data-driven features. His works have been featured on CB Blog Nation, Flow Words, Healing Law, WIBW Kansas, and Cinncinati....

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Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

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Reviewed by Jeffrey Johnson
Insurance Lawyer Jeffrey Johnson

UPDATED: Apr 4, 2022

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The Full Review

When buying or leasing a new car, having auto insurance is a necessity. But what happens if you total your vehicle and you owe more than it’s worth?

A full-coverage auto insurance policy will cover all the nitty-gritty things when it comes to your car, such as damage or theft, property damage or bodily harm, and in some cases, lost wages. But if you owe more on your loan than what the insurance company is willing to give you, then you could possibly be stuck with shelling out thousands of unnecessary dollars.

That’s where GAP insurance comes in.

What is GAP insurance for cars?

GAP insurance, or Guaranteed Asset Protection insurance, can help you cover the difference between what you owe on your current auto loan versus the amount that your car is actually worth if you get into an accident that results in serious damage or your car is somehow totaled.

Many times when your car gets damaged, it can result in hefty fees that your full-coverage auto policy will be able to cover. But if you need a new car and your insurance will only pay you what the market value is, chances are it could be a lot lower than what you still owe on your loan.

While GAP insurance isn’t a requirement, a policy for these types of situations can be a lifesaver.

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When should I buy GAP insurance?

It’s a good idea to consider buying GAP insurance for your new car or if you’re leasing your vehicle. Many times when leasing, your dealership will include or require GAP insurance in your auto loan, so you won’t have to worry about it.

However, that isn’t the case for buying a brand-new vehicle.

Here are some examples of when GAP insurance might be needed:

  • You put down less than a 20% payment at the time of signing
  • You financed for 60 months or longer
  • You purchased a vehicle that is known to depreciate faster
  • You rolled over any negative equity from your old auto loan into your new loan

Any of these types of situations could benefit from buying GAP insurance. While it isn’t necessary to do so, and generally isn’t required unless leasing, it’s still a good idea to have a backup plan for any of those unforeseen circumstances.

While vehicles don’t typically depreciate at a rapid rate, the market is always changing, so having any type of plan B will always help you in the long run.

How does GAP insurance work?

Since GAP insurance is great for vehicles that do typically have a faster depreciation rate than average, it’s always a safe bet to have just as a security net.

But what does GAP insurance cover?

Here’s a quick look at what GAP insurance could help with:

GAP coverage example 
Original loan Amount$38,000
Loan left to be paid$24,600
Current market value$19,500

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As you can see, there is still quite a bit left on the auto loan. Since the market value isn’t worth what you would still owe on the vehicle, you’d be forced to pay out the rest of your loan if your car is seriously damaged or totaled.

Insurance companies will only give you what your car is worth at the time of your claim, and many times it’s far less than what you’d need to pay off the rest of the loan. However, by having GAP insurance, your policy would be able to pay you out for the rest of what is owed on your loan, saving you potentially thousands of dollars.

Keep in mind, a GAP policy isn’t forever. If you feel that you don’t need it after having it for a while, you are able to cancel it at any time. Since it’s an optional feature, you won’t be penalized for not having it.

How do I get GAP insurance?

GAP insurance is typically purchased at the time of purchase for your vehicle. Many dealerships will have their own GAP insurance that you are able to purchase at the signing. However, it does pay to shop around a bit. There are companies out there that offer competitive rates as well as a few extra perks by going with their policies versus the ones you’d find at a dealership.

GAP insurance will typically run you about $20-$40 annually. So having coverage for it is usually worth it in the long run.

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Companies That Offer GAP Insurance

Typically, the price for GAP insurance will vary, but by going through an insurance company rather than a dealership, you’ll get a much better rate.

ProviderCostDetails
Travelers5% of the car's comprehensive and collision rateCan also add a loan/lease GAP coverage to their policy; only newly purchased vehicles are eligible
The HartfordCost varies depending on car's current market valueHas discounts for AARP members; GAP insurance must be added to your policy within the first 30 days of purchase
Kemper5% of the car's comprehensive and collision rateGreat for high-risk drivers
Liberty Mutual$5-$15/monthCan be bundled with regular auto policy for a lower rate
NationwideCost varies depending on car's current market valueAvailable for cars that are 6 years old or newer; there are also a variety of discounts available including usage-based and pay-per-mile

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Some GAP insurance policies are able to be bundled if you have an auto loan with an insurer already. So keep that in mind when shopping for GAP insurance policies, as some companies will offer you additional perks such as bundling and discounts if you choose to add it to your current policy.

Is GAP insurance worth it?

The answer to this will always depend on your situation. If you feel that the above situations apply to you (for example, you put down a smaller down payment, you’re leasing, etc.) then it would be worth it to look into buying a GAP insurance policy.

Not only would you be saving yourself the headache of fighting with an insurance company for a proper payout, but you could be potentially saving yourself thousands of dollars.

On the other hand, if none of those situations apply to you, then GAP insurance may not be worth it. As stated before, GAP insurance isn’t a requirement, so you don’t need to have it to be able to own your vehicle. But the cost of adding it to your policy is typically very cheap, so you won’t be throwing away a ton of money if you do end up adding it to your auto policy.

What does GAP insurance cover? The Bottom Line

When buying a car, you always want to make sure you’re protecting yourself in case anything happens. No one wants to be stuck with a large bill that could potentially wind up costing them thousands of dollars. Especially if your car is seriously damaged or totaled and its market value isn’t worth what you’re currently paying.

GAP insurance can save you a lot of headaches in the long run, and it isn’t that expensive. So, you won’t have to worry about shelling out hundreds of dollars on something that you might not use in the long run.

GAP insurance is meant to be a safety net, much like auto insurance. So, having it can give you the peace of mind that comes with owning a car.