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 that shows how you get larger payout with gap insurance

Keep in mind, to qualify for gap insurance, you must have comprehensive and collision coverage on your policy.

What does gap insurance cover?

Gap insurance applies any time your vehicle is totaled in an accident. If your car is stolen, this coverage will pay the actual cash value (ACV) of the vehicle minus your deductible.

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.

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.

Is gap insurance worth it?

When there's a significant difference between your car's value and what you owe on it, loan/lease payoff coverage is a valuable safeguard. Consider buying gap coverage 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%, you could end up with negative equity on the vehicle as soon as you drive away from the dealership.
  • You have a longer financing term for your vehicle: The longer your vehicle is financed, the better the 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 knowing the average depreciation for your vehicle could help determine if you need gap coverage.
  • You have a loan rollover: If you owe more on the loan than your car is worth at the time of renewal, gap insurance can help protect you against the negative equity.

How much is gap insurance?

The cost for gap coverage varies by insurer. Progressive offers loan/lease payoff coverage for only $5 a month on average.

If you want an exact price for your gap insurance, 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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