Gap Insurance Explained: What It Covers and When to Ask About It
If a car is totaled or stolen, a standard auto policy generally pays the car's current value, not what you still owe. Gap insurance is meant to cover that difference. Here is how it generally works.
What the gap is
A car loses value over time. If you owe more on a loan or lease than the car is worth, there is a "gap". After a total loss, your insurer generally pays the car's value at the time, and you could still owe the rest to the lender.
What gap insurance generally does
Gap coverage is designed to help pay the difference between the insurer's payout and the amount left on the loan or lease after a covered total loss. Terms vary by product, so read what is and is not included.
When people ask about it
- A small or no down payment
- A long loan term
- A lease, where some contracts already include gap protection
- A vehicle that tends to lose value quickly
What it usually does not cover
- Your regular deductible, in some policies
- Missed payments or late fees
- Damage that your main policy does not cover
- Repairs, since it is for total losses
Where it can be bought
Gap coverage may be offered by a dealer, a lender or your auto insurer. Prices and terms can differ, so ask each for the written terms before you decide.
Questions to ask
- Is gap already included in my lease or loan?
- Does the coverage cancel if I pay off the loan early, and can I get a refund?
- Is there a limit on the payout?
- Do I need collision and comprehensive coverage for it to apply?
Next step
A licensed agent can explain how gap coverage fits with your auto policy. HavenLine is a referral service, not an insurance company.
Questions
Do I need gap insurance if I paid cash?
If you have no loan or lease balance, there is generally no gap to cover.
Is gap insurance required?
Some lenders or lessors may require it. Check your contract.
General information only, not financial, legal or insurance advice. Rules, prices and benefits vary by state and by policy. A licensed professional can explain what applies to you.