What is Gap Insurance?

Gap insurance form on clip board

Gap Insurance is an add on insurance for your car in the case your car is totaled or stolen. It helps close and covers the gap between what you owe on the car and what the vehicle is worth. 

Who is Gap Insurance for?

Gap insurance is for people who owe a great deal of money on their vehicle. If you own your own car or have very little left to pay off your car, then gap insurance wouldn’t help you. Although if you are the type of person who takes out a big loan for your car, it is probably is worth it. 

If you put less than 20% down on the purchase of your vehicle

If you buy a new car that costs $25,000 and only put down $2,000 to purchase the vehicle. Obviously you owe $23,000. But when you drive your new car off the lot you car immediately starts to depreciate, and will keep on depreciating every single day.  In that case you would benefit from Gap Insurance if anything catastrophic should happen to your vehicle. 

If you drive more than 15,000 miles per year

Your car depreciates the fastest when you put mileage on your car. If you intend on putting a lot of miles  on your car, your car will quickly depreciate. Meaning you ‘ll car will be worth less and less each day. 

If you lease your car

When you lease a car from a dealer, gap insurance is usually rolled up within your monthly payments. Although it is not guaranteed in all situations. Make sure you ask the dealer if you have this type of coverage because it could cost you a great deal in the end if something should happen to your car.

If you cosign a car loan

2 cars involved in a car crash

If you are the cosigner of a car loan with a significant balance, gap insurance makes a lot of sense. Take for instance if the person you cosigned the loan for has totaled the car and there is a significant balance on the loan. If you have more money in the bank, the debtor may go after you. Gap insurance makes good sense especially when a cosigner is involved. 

If you roll over a balance from a previous car or vehicle loan

If you buy a new or used car and roll your existing car into the loan, you are adding more money to what you will owe. If the car you just bought gets totaled or stolen you will owe a great deal of money. This would be one of the instances to make sure you look into gap insurance to get you covered. 

If you finance longer than 60 months

When you take out a long term loan such as 60 or 72 months, it will take you much longer to hit the break even point on the car loan. That means that you’ll owe more than the car is worth. This is where gap insurance comes in. If something were to happen to the car you would be covered. 

Where to get Gap Insurance

The dealer where you buy your vehicle will usually offer some Gap Insurance, but it’s far better to get it from your insurance agent.  The costs for from a dealer will usually cost you more. In addition, often times they will require the full amount paid up front. Your insurance agent may also have a lower cost version of gap insurance called loan lease insurance that may be better for your situation. 


Gap insurance can make sense for you if you balance is large and there is a chance you will be upside down on your car loan.  If you put down a substantial down payment and you buy a car with good resale you probably won’t need it. Talk to your independent insurance agent to get the best rate.