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Is gap insurance worth it?


Gap insurance, while not legally required, can be a smart option for most drivers. In addition to your regular auto insurance policy, it's wise to carry gap insurance coverage, especially if you have a valuable new vehicle that is either financed or leased. Let’s explore the ins and outs of gap insurance and how it can be a great add-on to your auto coverage.


Gap insurance overview — table of contents:



How does gap insurance work and what does it cover?

Gap insurance covers the financial “gap” between the amount an insurance company will pay you for your car if it’s totaled and the amount you might owe to a lender or dealership. Because most car insurance policies reimburse you based on an actual cash value (ACV) and not replacement cost value (RCV), it's possible to end up "underwater" on a car loan, meaning you owe more on your auto loan than the vehicle is worth.

Let’s say you bought a 2018 SUV worth $30,000 and took out a loan to pay for it. Because of the rate at which vehicles depreciate, your SUV will be worth significantly less than you paid for it as soon as you drive it off the lot. If you were to total your car soon after purchase, your car insurance company would only reimburse you for the vehicle's present value — usually much less than the balance of your loan. You would need to make car payments on a vehicle that had been deemed a total loss. Gap insurance would cover the difference between the value of your auto loan and the value of your car.

*Maintaining comprehensive and collision insurance is usually a requirement of gap insurance coverage.



What is loan lease payoff coverage?

Loan lease coverage is another form of gap coverage. However, loan lease payoff coverage differs in the amount that it pays. While gap insurance will often pay the full amount between what you owe and what your vehicle is worth, loan lease coverage usually only pays up to 25% of your car's actual cash value. In many cases, this is enough to cover the gap in what you owe. However, if you have a higher-priced vehicle, it may not cover everything. 

Some insurers also stipulate that gap coverage be purchased within 30 days of buying your vehicle. The time-frame for buying loan lease coverage is usually more lenient and can often be added on at any time.



Is gap insurance required?

Unlike state-mandated liability coverage, not everyone is required to carry gap insurance. Still, depending on the nature of your car ownership, it could be a wise investment. Let’s break down some situations in which you should consider whether gap insurance is worth it.

Scenarios in which you should consider gap insurance:

You have a financed car:

If you have a loan on your vehicle, gap insurance might be worth considering.

You have a leased vehicle:

If your car is leased, you might be required to carry gap insurance. While it may vary based on your lease agreement, many will require you to carry this coverage. This is because leased vehicles tend to be brand new vehicles, which depreciate rapidly. Lenders do not want to be left uncompensated if the leased vehicle is totaled.

You make a small down payment:

If you make a smaller down payment — say less than 20% — the remaining balance can hurt you in the event your car is totaled (down payments are always required).

You're financing your vehicle long-term:

If you’re financing over a longer period of time — more than two years, for example — consider gap insurance. Long-term financing may cause your vehicle to depreciate faster than the rate at which you can actually pay off the loan balance. This could leave you in a tricky situation.

You’ve bought a vehicle that doesn’t have great resale value or depreciates quickly:

Look at the cost of ownership on Edmunds or Kelley Blue Book. If your vehicle depreciates quickly but you still have a loan on the vehicle, chances are the value you will receive from your insurance company won’t cover the loan.



Where to get gap insurance

You can get gap insurance through your insurance company, the dealership, or your lender. There is a lot of information on which of these sources you should purchase gap coverage from. It’s hard to definitively say which one will be the cheapest or best option for you, so you’ll have to do some of the legwork yourself, comparing as many insurance providers as possible to get the best quotes and coverage options. Consider, however, the following advice:

  • Is gap insurance automatically included in your lease agreement or additional purchase?
  • If you fail to add comprehensive and collision coverage, your car insurance company — if you get the coverage through them — might not honor this coverage.
  • The cost of a gap insurance policy will ultimately depend on where you get it and the make/model of your vehicle. Still, you should assess as many different avenues as possible to see which one is the cheapest.



Gap insurance considerations and tips

Whether you are purchasing a used or new car, buying gap insurance can be a great move. Adding gap coverage to your car insurance policy provides an extra bit of protection at an affordable price.

According to the Insurance Information Institute, gap insurance costs only about $20 a year when added to most auto insurance policies. This cost may vary from one car insurance company to another, but it is a relatively small price to pay for the peace of mind that such a policy brings.

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Car got stolen and only have gap insurance

Gap insurance only covers difference between what an insurance company paid out and what remains on your loan. If you did not have insurance at the time of the claim they likely will not honor anything.
May 3, 2018 North Charleston, SC

Will gap insurance pay out if I buy the salvaged vehicle from the insurance company?

Your gap coverage should still cover the $2,000 owed on the loan regardless of what happens after that. I would definitely check directly with your insurance company to make sure there is no stipulation that prevents this if you choose to buy back the salvage title.
Feb 23, 2020 Madison, WI

If I have full coverage and gap insurance, which one pays out if I total my car?

Sorry to hear about your accident. Your auto insurance plan will pay out the actual cash value as determined by the adjuster—minus any deductible you have.
Oct 14, 2019 Cass Lake, MN

Can I get liability insurance for a financed car, and can I get gap insurance without full coverage?

Typically, no. You don't want liability only because the car will not be sufficiently protected.
Aug 8, 2019 New Haven, CT

About The Zebra

The Zebra is not an insurance company. We publish data-backed, expert-reviewed resources to help consumers make more informed insurance decisions.

  • The Zebra’s insurance content is written and reviewed for accuracy by licensed insurance agents.

  • The Zebra’s insurance content is not subject to review or alteration by insurance companies or partners.

  • The Zebra’s editorial team operates independently of the company’s partnerships and commercialization interests, publishing unbiased information for consumer benefit.

  • The auto insurance rates published on The Zebra’s pages are based on a comprehensive analysis of car insurance pricing data, evaluating more than 83 million insurance rates from across the United States.

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Ava LynchSenior Analyst

Ava worked in the insurance industry as an agent for four-plus years.

Ava currently provides insights and data analysis as one of The Zebra's property and casualty insurance experts. Her work has been featured in publications such as U.S. News & World Report, GasBuddy, Car and Driver, and Yahoo! Finance.