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

$20,000

Amount you get with gap insurance

$25,000

Car with a gap insurance payout versus a payout without 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 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.

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, gap insurance 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. 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.

How to get auto insurance through Progressive

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