GAP insurance covers the difference between what you owe on your car loan and what it's worth if totaled. If you're 'underwater'—owing more than the car's value—GAP could save you thousands. But it's not always necessary. Here's how to decide.
If your car is totaled or stolen, regular insurance pays the current market value—not what you owe. GAP covers the 'gap' between these amounts. Without it, you'd pay the difference out of pocket while having no car.
GAP makes sense if: You put less than 20% down. Your loan term is long (60+ months). The car depreciates quickly (most new cars). You're rolling negative equity from a previous loan. Any of these increases underwater risk.
Skip GAP if: You put 20%+ down. Your loan balance is less than the car's value. The loan term is short (48 months or less). You can afford to cover any gap out of pocket. Once your loan balance is below car value, GAP has no value.
Dealers offer GAP in the finance office—often at marked-up prices ($400-$900). Your auto insurer may offer it for $20-$40/year. Credit unions selling car loans often include it free. Shop around before accepting dealer GAP.
Once your loan balance drops below your car's value, GAP provides no benefit. Cancel dealer-purchased GAP for a prorated refund. Switch from insurance-company GAP to save the premium. Review annually.
Guaranteed Asset Protection—though it's commonly called Gap insurance. It protects you when your loan balance exceeds car value.
Dealer GAP: $400-$900 upfront. Insurance company GAP: $20-$50/year. Credit union GAP: sometimes free with the loan.
Rarely at dealer prices. The same coverage from your insurer or credit union costs much less. Compare before accepting.
Yes, from most auto insurers. It's not limited to the point of sale. Just don't wait until you have an accident.
Standard GAP doesn't, but some policies include deductible coverage. Check policy details before buying.
Until your loan balance drops below your car's value—typically 2-4 years depending on down payment and loan term.
You pay off the remaining loan balance out of pocket—potentially thousands of dollars—while needing to buy another car.
Most lease agreements include GAP. Check your contract—if it's not included, consider adding it.