GAP Insurance 101

What it is, when you need it, and how to get it.

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You’ve heard it said, “A new car loses value the minute you drive it off the lot.” And though it may seem like an exaggeration, it’s true: as soon as you leave the dealership, your car loses about 11% of its value. How much less your vehicle is worth after purchase depends on the model, year, and starting price, of course, but as’s helpful car depreciation infographic shows, even a moderately priced Nissan (True Market Value price: $29,873) loses over $2,500 in the first minute it’s off the lot—and another $5,000 over the first year, and a total of almost $10,000 by the end of the second year.

So, okay, cars lose value, this probably isn’t big news to most. But unless you pay for your new (or new-to-you) car outright (or pay a big down payment on your lease), the difference in what you owe versus what the car is actually worth—the gap, if you will—can become a significant factor in the case of a total loss (if your vehicle is “totaled” or a theft occurs).

Say you finance that brand new Nissan and while still making payments, the car gets totaled in a wreck, or stolen. Luckily you were smart, you got comprehensive and collision auto insurance (more than the minimum required in most states, and it covers both traffic-related damage and things like weather damage, fire damage, and theft). However, if your car was only worth (according to the True Market Value) $22,000 at the time of the wreck or theft, but you financed it for $29,000, and still owe $27,000, you’ll be responsible for the $5,000 difference—plus your deductible.

If you put less than 20% down on a financed car, add GAP insurance to your shopping list.

This is where GAP—Guaranteed Asset Protection—insurance comes in. With GAP insurance, your carrier will pay that $5,000, not you. We know that planning for your car to get totaled or stolen by purchasing GAP insurance before you even properly get behind the wheel is a bit like signing a prenup, but what both might lack in romance, they make up for in practicality. Just ask Paul McCartney.

Find out which situations call for GAP insurance, and when you can do without it, below.

GAP Insurance: When Do You Need It?

First, when do you not: if you pay outright for a new car (as in, the entire balance), you won’t need GAP insurance. If you lease your car and make a substantial down payment, you probably won’t need GAP insurance either.

If you don’t put a large amount down on a financed or leased car, you should seriously consider GAP insurance. That way, if your vehicle is totaled or stolen while you still owe money on it, you won’t end up with a huge out-of-pocket expense.

In many cases, auto insurance companies offer lower GAP insurance rates than dealerships.

Bankrate reports that GAP insurance will come in handy if you:

  • Put less than 20 percent down
  • Roll negative equity from a previous vehicle loan into a new vehicle loan
  • Drive more than the average 15,000 miles annually
  • Purchase a vehicle with a history of high depreciation rates

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How Much Does GAP Insurance Cost, And Who Offers It?

Most dealerships offer GAP insurance on financed and leased cars, and they might put the pressure on by telling you it’s only available the day you sign on the dotted line. But don’t cave—most auto insurance companies offer GAP insurance, usually for much less than a dealer, and you can usually add it to your current policy at a relatively low price.

A few things to keep in mind: if you want GAP insurance, some companies have requirements, so be sure to look at all the details. For example, some insurers require customers to carry comprehensive and collision insurance if they also want GAP insurance.

The price: it varies, as all things do, from company to company. But [Bankrate] reports that GAP insurance usually costs about 5-6 percent of a premium’s collision and comprehensive insurance. They say, “On a $1,400 annual premium—with $420 to $560 of that typically for collision and comprehensive—GAP insurance would cost $20 to $30.” That’s $20-$30 a year, total. Of course, if your premium is more than $1,400 a year, your GAP insurance will go up, too, but it’ll still cost you less than the difference between your vehicle’s TMV and what you paid, in the event of a total loss.