What is gap insurance?
Gap insurance pays the difference between your vehicle's value and what you still owe on it. It typically applies when your vehicle is stolen or totaled. In either scenario, your comprehensive or collision coverage pays out the actual cash value (ACV) of your vehicle, minus your car insurance deductible. Your gap insurance may then pay the difference between the vehicle's ACV and however much you owe on it.
It's essential to remember that gap insurance only covers the difference in the amount you owe versus the value of the vehicle. It doesn't provide any benefits due to repairs, damages, or injuries. You also need to carry comprehensive and collision coverage in order to add gap coverage to a car insurance policy.
Pro Tip:
Progressive offers loan/lease payoff coverage, which is similar to gap coverage. The main difference is that the payout for loan/lease payoff coverage is limited to no more than 25% of your vehicle's value, though the exact limit varies by state.
Can I have gap insurance from both my insurance company and the dealer?
It's possible to have gap insurance through both your car insurance company and your vehicle's dealer. However, this is often redundant and unnecessary as you'd essentially be paying twice for the same coverage.
To keep costs low, it's important to verify that your dealer didn't include gap insurance as part of your monthly loan payments. Many dealers include gap coverage, but you can deny their coverage if you prefer to buy through your insurer or your loan terms don't require gap coverage.
Pro Tip:
If you purchase a brand-new vehicle, gap insurance can help bridge the divide between your loan amount and your car's depreciated value when you drive it off the lot.