đźš— What Is Gap Insurance?
Gap insurance covers the difference between what you owe on your car loan/lease and what your car is actually worth if it's totaled or stolen.
Example:
- • You owe: $25,000 on your car loan
- • Car's actual value: $18,000 (depreciation happens fast)
- • Your insurance pays: $18,000
- • Without gap: You owe $7,000 on a car you don't have
- • With gap: Gap pays the $7,000
Do You Need Gap Insurance?
âś“ You NEED Gap If:
- • You put less than 20% down
- • You have a 60+ month loan
- • You're leasing (usually required)
- • You rolled over negative equity
- • Your car depreciates quickly
âś— Skip Gap If:
- • You put 20%+ down
- • Your loan term is 48 months or less
- • You've paid off enough to be above water
- • You bought a used car at fair value
- • You could cover the gap from savings
How Much Does Gap Insurance Cost?
| Source | Cost | Notes |
|---|---|---|
| Your auto insurer | $20-40/year | Best value—add to existing policy |
| Credit union | $200-400 total | One-time fee, good option |
| Dealership | $500-1,000 total | Overpriced—avoid! |
⚠️ Dealership markup: Dealers often charge $500-$1,000 for gap insurance that costs $20-$40/year through your insurer. That's 10-20x more expensive. Never buy gap at the dealership.
Where to Get Gap Insurance
Progressive
Offers "Loan/Lease Payoff" coverage—their version of gap insurance.
Allstate
Offers gap coverage as an add-on to comprehensive/collision.
Nationwide
Competitive gap rates available as add-on.
GEICO
Does NOT offer gap insurance. You'll need separate coverage.
Frequently Asked Questions
Can I cancel gap insurance after paying down my loan?
Yes! Once your loan balance drops below your car's value (you're no longer "underwater"), gap insurance is unnecessary. Cancel it and save money.
Is gap insurance required for leases?
Usually yes. Most lease agreements require gap coverage. The good news: many leases include gap coverage in the lease payment at no extra cost. Check your lease terms.
The Bottom Line
Gap insurance is essential if you're underwater on your loan (owe more than the car is worth). It's unnecessary if you're not. Always buy through your auto insurer ($20-40/year) rather than the dealership ($500-1,000). And remember: GEICO doesn't offer gap, so Progressive is your best bet for cheap rates with gap included.