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Gap Insurance: What Is it and Who Needs It?

Posted by Allison Ruuska on 12/24/2007 at 1:00 PM

When you buy a new car, you may be asked if you want gap insurance. Find out all the benefits of gap insurance—and understand how insurance options help protect you—so you can decide what’s right for you. 

 

What Is Gap Insurance?

Gap insurance literally covers the gap between what you owe on a car and what it's worth if your car is totaled in a covered loss, such as an accident or theft. The types of losses covered and the extent of coverage vary depending on the company providing the gap insurance, so make sure you clarify what's covered before you make your decision.

Who Needs Gap Insurance?

If you purchased or leased a new vehicle and weren't able to afford a large down payment, you may need gap insurance. Vehicles notoriously depreciate in value — and quickly — and depreciation starts the moment you leave the dealership. If you're not able to pay the difference between what you owe and what your vehicle is worth out of pocket, gap insurance may be worth your while.

One thing to remember if you're leasing a vehicle: Often, leasing companies include gap insurance or loan/lease payoff coverage in their contracts, so make sure you review your contract before you purchase it from your auto insurance company.

When Do You Need Gap Insurance?

Here's an example of when you'd use gap insurance: You swerve to avoid a deer and end up driving into a ditch, where your brand new vehicle rolls over. Though no one's hurt, your car sustains heavy damage — so much so that the cost to repair your vehicle is higher than its actual cash value (ACV). Your insurance company decides to total your car, and after running an N.A.D.A. valuation, they determine the ACV is $25,000.

You purchased your car a few weeks earlier for $28,000, and you haven't even made the first payment yet, so you still owe $28,000 to your lender. If your insurance company pays $24,500 to settle your claim — remember: you still have to pay your $500 collision deductible, so you must subtract that amount from the ACV amount — you're still responsible for paying the remaining $3,500 to your lender.

In this case, if you have gap insurance, that $3,500 is covered by your insurance company, and they'll pay your lender the difference between what you owe and what your vehicle is worth. You won't be responsible for paying the difference because you chose gap insurance when you got the vehicle.

Keep in mind that if you purchase gap insurance from your insurance company, often you can only use this coverage if your claim is covered under your comprehensive or collision coverage. Not every insurance company offers the same types of coverage, so refer to your policy for more details.

Progressive's Loan/Lease Payoff Coverage

Progressive does not offer gap coverage, but we do offer Loan/Lease Payoff coverage to customers, which is slightly different from gap insurance because a maximum payout of 25 percent of your vehicle's ACV is stipulated in your policy. In the example above, up to $6,250, less your deductible, would be paid to cover the difference between the ACV and what you owe.

When you shop with Progressive, we'll discuss whether Loan/Lease Payoff coverage is right for you. We consider the age of your vehicle — generally vehicles older than three years do not need Loan/Lease Payoff — and we even remind you when you may no longer need the coverage.

Some stipulations exist with Loan/Lease Payoff, including the following:

  • Your lender must be a financial institution rather than an individual.
  • Your policy must have Comprehensive and Collision for the vehicle.
  • The claim must be covered under your Comprehensive and Collision coverage.
  • Your vehicle must be determined to be a total loss.
  • Loan/Lease Payoff will not pay for past-due amounts or other purchased coverage, such as credit life, accidental death, warranty/repair, etc.

For more information, contact Progressive 24/7 at 1-800-PROGRESSIVE (1-800-776-4737). Our licensed insurance representatives can help you decide what coverages are right for your situation.

The information in this blog may vary based on your particular state or situation. Always refer to your insurance policy for your specific coverages.

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Comments

are named drivers on my insurance policy covered by gap insurance
Posted on 12/26/2009 at 7:50 AM by carly
@carly, thanks for your question. Please call us (800-776-4737), so we can look up your policy and let you know about coverage. Customer service reps are available 24/7.
Posted on 12/30/2009 at 12:47 PM by Brittany R.
Here is a answer I need, if the ACV is less than what is owed, having full insurance coverage what is paid out?
Posted on 1/11/2010 at 7:58 PM by Keith
@Keith, Thanks for your comment. If you have gap insurance and your car is totaled in a covered loss, then your insurance company will pay your lender the difference between what you owe and the ACV (minus any deductible you owe). There's a good example in the blog post with specific #s that illustrates this. I hope this helps.
Posted on 1/12/2010 at 2:15 PM by Brittany R.
I have a question regarding this, I just purchased a used vehicle and the lender recommended GAP insurance. I do have comprehensive collision insurance from Progressive in my vehicle. The vehicle is 3+ years old and the loan was a little bit under the ACV based on N.A.D.A., of course after adding all the "extras" the loan will be higher than vehicle's ACV. My question is, will Progressive, and based on what I read and in the event the car is totaled, will pay for ACV and 25% over the ACV to cover for the loan? (minus the deductible). And also will I be still responsible for the overage of the loan since these are "extras" and not part of the ACV? As an example to clarify myself, the vehicle's ACV is $10,000, after adding the extras (extended warranty and so on) the loan skyrocket to $12,000. At the time of the accident the car's ACV is $7,500, will this mean that Progressive will cover for the $8,000 + 25% ($2,000 - deductible) towards the loan, ($9,500), and then I will be responsible for the rest (about $2,500)? Thank you
Posted on 1/19/2010 at 7:32 AM by Ernie
@Ernie ... Great detailed question. Please submit it through our "Contact Us" form so that a rep who's qualified to answer it can follow up with you. Here's a link to the form: https://www.progressive.com/contact-us.aspx. Feel free to copy and paste this exact question into the form (the more details, the better). Thanks!
Posted on 1/19/2010 at 8:32 AM by Brittany R.
is there a specific time allowed to buy gap insurance???
Posted on 3/12/2010 at 1:03 AM by yan
I just purchased a new car and I am planning on going with progressive - when I was doing the free estimated quote there was an option to pay off - does this mean if i have full coverage and i get into a wreck will the whole car be paid off for or do I still need GAP or is that considered GAP for progressive
Posted on 3/23/2010 at 12:18 PM by Sherisa
@yan, You can purchase this coverage when you first purchase your Progressive policy, or you can add the coverage later. However, if it's been three or more years since you signed the lease or purchased the vehicle, the coverage may no longer be needed (depending on how much you still owe on the vehicle compared to its actual cash value).
Posted on 3/23/2010 at 2:25 PM by Brittany R.
@Sherisa, You may be able to purchase gap coverage through the loan or lease company when you lease or buy your new vehicle. Or, you can purchase this coverage through an auto insurance company. You don't need to purchase it from both. Compare the gap coverage program for your lease/loan to the coverage offered by your auto insurance company to identify any program/eligibility differences and decide which program best meets your needs. This blog post and our Loan/Lease Payoff Coverage page (http://auto.progressive.com/progressive-car-insurance/loan-lease-payoff-coverage.aspx) provide more details about gap coverage offered through Progressive. There are state-specific details, too, so to learn more, please contact us online (https://www.progressive.com/contact-us.aspx) or by phone (800-776-4737).
Posted on 3/23/2010 at 2:32 PM by Brittany R.
Hi am about to purchase a 2 year old car and will want gap (or loan payoff) coverage. There is a good possibility I will refinance with my credit union once I have completed a few things to improve my credit score. I need a car now so I will go with the dealer finance (rates are not really bad anyway) when I buy the car. My credit union advised me to decline the gap coverage if it is linked to the loan because it can't be carried over to a new loan and it is available through most car insurance companies anyway and often for lower premium. It makes sense to me but are there any other pitfalls to be aware of with a situation like that?
Posted on 7/8/2010 at 2:13 PM by Carl
@Carl, A good thing to do would be to compare the Loan/Lease coverage offered by Progressive (details available here: http://auto.progressive.com/progressive-car-insurance/loan-lease-payoff-coverage.aspx) with the Loan/Lease covered offered by your finance company to help you feel comfortable with your choice. If you’d like to talk to a Progressive rep, feel free to call 800-776-4737
Posted on 7/13/2010 at 12:38 PM by Brittany R.
<p>My brother in law was killed in a motorcycle accident (his cycle). His other vechicle (a truck) has gap insurance. We are the ones in charge to finish all the left over business. (death certificates, etc..). Well he still owes on the truck. So does gap insurance step in to take car of remainder payments? He has already paid&nbsp;a large&nbsp;amount&nbsp;on it. Its will be a real shame if we have to turn it in. There is nothing in the estate and it would be real nice ig gap jumped in. He left behind his only son, which cant afford that. But would like to have something left from his dad. Let me know.</p>
Posted on 8/29/2011 at 11:50 PM by Judy
@Judy, First of all, I am deeply sorry to hear about the loss of your brother-in-law and the difficult time you and your family are going through. To answer your question: Typically, gap coverage is for use in the event of a Total Loss of the covered vehilce. Since there was no accident involving the truck, coverage should not apply. In a Total Loss situation, if the value of the vehicle at the time of the accident is less that what is owed on the vehicle, gap insurance will kick in (up to it's limits) to help make up the difference owed to the lendor or leasing company. Progressive's "Loan/Lease Payoff" (our version of gap coverage), acts this way. If your brother-in-law's gap coverage was with his lender, it may act differently and you should contact them for information. I hope this is helpful.
Posted on 9/12/2011 at 9:31 AM by Progressive
if i had gap ins. on my car that was stollen and found stripped and sent back to dealership becqause farmers ins. only would pay 300. to go get car inwhich was almost to mexico and we didnt have the funds to make trip to retreive our car that was stripped and other un known things wrong with car. so we released the car to the finance company . are we still covered by gap ins?
Posted on 1/15/2012 at 3:11 AM by jackie coats
@Jackie: True GAP coverage that is offered through a finance company pays the gap between what the vehicle is worth (blue book value) and the amount that you owe on the loan, should it be greater than the amount of the vehicle's actual cash value. It should work in tandem with your comprehensive coverage, which is the coverage that you would use when handling a theft claim.You would definitely want to get in touch with the finance company, specifically the department that handles the resolution of GAP claims, and make sure that what was described here is what you had signed up for through them.
Posted on 1/17/2012 at 2:21 PM by Progressive
If my insurance lapsed car was stolen and totaled does gap cover anything?
Posted on 3/2/2012 at 8:26 AM by eric
@Eric: We're sorry to hear about that. If you did not have an active policy at the time of the loss, your coverage would not pay out. However, we recommend that you contact your lienholder to see if you have gap insurance with them.
Posted on 3/6/2012 at 8:29 AM by Progressive
If the claim must be covered under your Comprehensive and Collision coverage, can you give a few examples of what would disqualify the Loan payout?
Posted on 3/19/2012 at 4:40 PM by Angela
@Angela: For any kind of "what if" question, it's best to speak directly with a claims specialist. Please call 1-800-274-4499 for further assistance.
Posted on 3/22/2012 at 7:13 AM by Progressive
does gap insurance make your payments if you become short term disabled ?
Posted on 11/4/2012 at 6:54 PM by Eric London
@Eric: Gap insurance, which we call Loan/Lease Payoff coverage, applies if your vehicle is totaled or stolen, and the amount owed on the vehicle is higher than what the vehicle is worth at the time of the accident. This coverage has nothing to do with short term disability.
Posted on 11/6/2012 at 9:55 AM by Progressive
Just bought new Vehicle. Couldn't avoid a deer. Have State Farm (500 deductible) and Gap In insurance. Probably not totaled. What will my Gap insurance cover?
Posted on 11/18/2012 at 2:25 PM by George Staples
People beware, I had gap insurance with progressive and they did not pay a dime! It was storm damag, had full coverage with flood and gap. Be sure to read reviews online before its too late. I would not recommend them to anyone
Posted on 1/15/2013 at 6:20 PM by Cyndi
Cyndi......why wouldn't they pay??? What was their reason? Do you have details of the damage, balance owed on vehicle, and value of the vehicle. Before I make a commitment with the loan/lease payoff and cancel my true Gap insurance purchase through the dealer, I'd like to make sure it isn't a scam. Thanks.
Posted on 4/1/2013 at 11:03 AM by Michelle

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