What is gap insurance?

Gap insurance is an optional auto insurance coverage that applies if your car is stolen or deemed a total loss. When your loan amount is more than your vehicle is worth, gap insurance coverage pays the difference. For example, if you owe $25,000 on your loan and your car is only worth $20,000, your gap coverage covers the $5,000 gap, minus your deductible.

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Stack of money showing gap insurance payment

How does gap insurance work?

Gap insurance protects you from depreciation. Once you buy your car, its value starts to decrease—sometimes significantly. If you finance or lease a vehicle, this depreciation leaves a gap between what you owe and the car's value. Let's look at an example with gap insurance and without:

Amount you get without gap insurance


Amount you get with gap insurance


Car with a gap insurance payout versus a payout without gap insurance.

Example:You finance $30,000 for a new car. You've had it for a few years and have been making all your payments. It's now worth $20,000 but you owe $25,000 on your loan, representing a $5,000 gap. If the vehicle is totaled, your insurer would pay you $25,000 (minus your deductible). Without gap insurance, you'd only receive $20,000 (minus your deductible).

Keep in mind, to qualify for gap insurance, you must have comprehensive and collision coverage on your policy. Watch our quick guide to learn more details about gap insurance:

Pro tip:

Progressive offers loan/lease payoff coverage, which is similar to gap coverage. The main difference is that the payout for Progressive's loan/lease payoff coverage is limited to no more than 25% of your vehicle's value, though the exact limit varies by state.

What does gap insurance cover?

Gap insurance applies any time your vehicle is stolen or totaled in an accident. When you file a qualifying claim, your comprehensive or collision coverage will pay the actual cash value (ACV) of your vehicle, minus your deductible. Your gap coverage may then pay the difference between your vehicle's ACV and the outstanding balance of your loan or lease. If your gap coverage includes a limit, it may only cover a portion of your outstanding balance if you owe a lot more on the vehicle than it's worth. Note that gap coverage may not cover additional charges related to your loan, such as finance or excess mileage charges.

Keep in mind that gap insurance doesn't cover other property or injuries as the result of an accident, nor does it cover engine failure or other repairs

Why do I need gap insurance?

When there's a significant difference between your car's value and what you owe on it, gap coverage can be a valuable safeguard. Consider buying gap insurance in these instances:

  • You're leasing your car: Lenders may require gap coverage on leased vehicles.

  • You made a lower down payment on a new car: If your down payment is less than 20% of the sale price, you could end up with negative equity on the vehicle as soon as you drive away from the dealership. Do the math on this even if you're buying used — gap insurance for used cars can protect you from negative equity just like it does for new cars.

  • You have a longer financing term for your vehicle: The longer your vehicle is financed, the higher your chance of owing more on the vehicle than it's worth.

  • You want to protect yourself against depreciation: Some cars have a higher depreciation rate than others, so calculating the average depreciation for your car could help you determine if you need gap coverage.

  • You have a loan rollover: If you owe more on your loan than your car is worth at the time of renewal, gap insurance can help protect you against the negative equity.

Do I need gap insurance?

Gap insurance isn't required by any insurer or state, but some leasing companies may require you to purchase it. Also, when purchasing a new car, some dealerships may automatically add gap insurance to your loan — however, you can decline this coverage. Check your current car insurance policy and car lease or sale documents to find out if you have gap insurance.

How much is gap insurance?

The cost for gap coverage varies by insurer. You can get an exact price for loan/lease payoff coverage, which is similar to gap coverage, from Progressive. Simply get a car insurance quote online and we'll give you an answer in minutes.

How long does gap insurance last?

Once you add gap insurance, it applies for the duration of your policy. However, you won't need gap coverage for the entire length of the loan. Once you owe less than what the car is worth, you can drop the insurance.

How to purchase gap insurance

While some dealers offer gap insurance for both leased and financed cars, you may end up paying interest on your gap coverage due to the bundled lease/loan payment. Buying gap insurance through your auto insurer can be a smarter option.

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