🚨 The Gap Insurance Markup
Dealership Price
$500-1,000
one-time
Insurance Company
$20-50
per year
Dealership Markup
500-1,000%
vs. alternatives
What Is Gap Insurance?
Gap insurance covers the "gap" between what your car is worth and what you still owe if your car is totaled or stolen.
Example Scenario:
You owe on your car loan: $28,000
Car's actual cash value: $22,000
Insurance pays out: $22,000
You still owe: $6,000
Without gap insurance, you'd owe $6,000 on a car you no longer have—while also needing money for a replacement.
Who Actually Needs Gap Insurance?
✓ You Need Gap If:
- • Down payment was less than 20%
- • Loan term is 60+ months
- • You rolled negative equity from trade-in
- • Leasing (often required)
- • Car depreciates faster than loan paydown
- • You're underwater on your loan
✗ Skip Gap If:
- • You put 20%+ down
- • Loan is 36 months or less
- • You already have equity in the car
- • You paid cash
- • Car value exceeds loan balance
- • Loan is almost paid off
💰 Where to Buy Gap Insurance (By Price)
Your Auto Insurer
Add to existing policy. Easiest and cheapest.
Credit Union
Often included free or at low cost with auto loans.
Standalone Provider
Gap Direct, EchoPark, etc.
Dealership (Worst Value)
F&I office add-on. Massive markup.
Pro tip: If you already bought gap at the dealership, you can often cancel it for a prorated refund and buy cheaper coverage elsewhere.
Gap Insurance vs. Loan/Lease Payoff Coverage
Some insurers offer "loan/lease payoff" coverage instead of true gap insurance. Know the difference:
True Gap Insurance
- • Pays full difference between ACV and loan
- • No percentage cap
- • Better for large gaps
Loan/Lease Payoff
- • Typically caps at 25% of ACV
- • May not cover full gap if large
- • Often cheaper or included
Example: If your car is worth $20,000 and you owe $30,000, loan/lease payoff at 25% only adds $5,000—leaving you $5,000 short. True gap would cover all $10,000.
How Long Should You Keep Gap Insurance?
Gap insurance becomes unnecessary once your car is worth more than your loan balance. Check annually:
Definitely keep it. This is when depreciation is steepest.
Check your loan balance vs. car value. May still need it.
You likely have equity. Check and cancel if so.
Use Kelley Blue Book or Edmunds to check your car's current value, then compare to your loan balance.
The Bottom Line
Gap insurance is valuable if you're underwater on your loan—but the dealership markup is outrageous. Never buy gap at the dealership. Add it to your auto insurance policy for $20-50/year instead. If you already bought dealership gap, call to cancel for a prorated refund. Check annually whether you still need it—once your car is worth more than your loan, cancel and save the money.