What is gap insurance

Therefore, this compensation may impact how, where and in what order products appear within listing categories. Other factors, such as our own proprietary website rules and whether a product is offered in your area or at your self-selected credit score range can also impact how and where products appear on this site.

While we strive to provide a wide range offers, Bankrate does not include information about every financial or credit product or service. All insurance products are governed by the terms in the applicable insurance policy, and all related decisions such as approval for coverage, premiums, commissions and fees and policy obligations are the sole responsibility of the underwriting insurer.

The information on this site does not modify any insurance policy terms in any way. Purchasing a brand new car is an expense that not everyone can pay for out of pocket; it often requires financing. If the vehicle is totaled or stolen, you still have to pay the outstanding loan amount, besides buying or renting another car to compensate for the loss.

Your standard car insurance will help pay for the expense of buying a new vehicle if your policy includes new car replacement coverage. If your vehicle is totaled beyond repair and the depreciated value is less than what you still owe on the loan, gap insurance picks up where your claim payout might not cover the difference. Guaranteed Asset Protection GAP is an optional endorsement that pays the difference between the loan amount and depreciated value of the vehicle.

If you are planning on leasing or buying a car or have already done so, you may be wondering if you should buy gap insurance, or possibly where to buy gap insurance.

Gap insurance is typically an optional coverage for drivers. In some states, however, an auto dealership is required to offer gap insurance at the point of purchase. Say you have been involved in an accident and your vehicle has been damaged beyond repair and must be replaced.

Some policies also cover the deductible. Remember that gap insurance typically applies only to vehicles that are brand new, or models less than a year old, that have been totaled or stolen.

It does not cover accidents, damages, repairs or a sale or trade-off, even if the financed amount is higher than the value of the vehicle. It will also not help buy you another vehicle — you would need new car replacement coverage to cover the expenses of a new vehicle.

You can get gap insurance from a few places — primarily the dealership or lender that is financing your car, or directly from an auto insurance provider.

Gap coverage is typically more expensive if you get it from the dealership or lender versus adding it to your car insurance policy. That said, a few factors may impact your gap insurance cost. Ask your auto insurer if it offers gap insurance and how much it would cost based on your situation to understand if gap insurance is the right financial protection for you.

Some auto insurers, like Geico , do not offer gap insurance, while others vary in how this protection is offered and how it works. In the event you do, gap insurance may be a good idea. You have the option to cancel the coverage at any time — typically recommended only once the amount owed on the vehicle is less than its market value.

If you are unsure of whether gap insurance is worth it, consider the cost to risk. Gap insurance is fairly inexpensive and in many cases can be added to your existing full-coverage policy for a nominal cost per year. Like any car or SUV, leased vehicles depreciate quickly. Therefore, if you did not put much money down and you still owe a sizable amount on your total lease payment, you will likely owe more than the vehicle is worth if you get into an accident. In this situation, gap insurance coverage for your lease might be a smart financial decision.

This means you may not need the coverage for your entire lease period. You may only need it for a few months, depending on your lease agreement. You have a few options for where to buy gap insurance: through the dealership, a standard auto insurer or a specialty gap insurance company. A gap insurance policy through dealerships can be too expensive to make sense for some drivers, although it can be a convenient option.

And, most vehicles' value depreciates about 20 percent in the first year of ownership. But, what if you still owe more on your loan or lease than the vehicle's depreciated value? That's where gap insurance may help. Gap insurance coverage may apply if you're underwater on your auto loan meaning, you owe more than the car is worth when your vehicle is stolen or totaled.

Whether a vehicle is declared totaled depends on state laws and your insurer's discretion. Keep in mind that, in the above scenario, the car insurance reimbursement goes completely to your auto lender to pay off a car that's no longer driveable. If you think you would need help buying a new car after yours was totaled, you might want to consider purchasing new car replacement coverage.

You may be able to get gap insurance after you buy a car, depending on the model year of the vehicle. Gap insurance isn't just sold at car dealerships — many insurers offer gap insurance as part of a car insurance policy. And, according to the III, buying gap coverage from an insurance company often costs less than buying it from a car dealership.

Some insurers require your vehicle to be brand new in order for you to purchase gap insurance. That may mean:. If you're considering buying gap insurance, it's important to remember that this type of coverage may only be available if you're leasing or financing a new vehicle. Then, think about how much you owe on your auto loan versus the value of your car. You can get an estimate of what your car is worth by checking a site like Kelley Blue Book.

Do you owe more than your car is worth? Could you afford to pay the difference out of pocket if your car is totaled? Have questions about gap insurance? Contact a local agent ,who can help explain your options. What Is Collision Insurance? What Is Comprehensive Insurance? Retrieve a saved quote. Skip to main content Explore Allstate. Popular Searches. Allstate We help customers realize their hopes and dreams by providing the best products and services to protect them from life's uncertainties and prepare them for the future.

You can cancel the gap insurance once your loan balance is low enough to be covered in full by a collision insurance payment. Think of it as a supplemental insurance policy for your car loan. If your car is wrecked, and your comprehensive auto insurance policy pays less than you owe the lender, the gap policy will make up the difference. The easiest way, and probably the cheapest way, is to ask your auto insurance company if they can add it to your existing policy.

You can compare prices online to make sure you're getting the best deal. The car dealership will probably offer you a gap policy but the price will almost certainly be higher than a major insurer will offer. In any case, check to make sure you don't already have gap insurance on your vehicle. Auto lease deals often build gap coverage into their pricing. Your best bet is to call your auto insurance company and ask whether you can add it to your existing policy. Your insurer should be able to tell you what your options are and how much adding gap coverage may cost.

Be sure to compare the best car insurance rates to find the right option. Gap insurance is typically an optional insurance product unless it's required by the terms of your lease or loan agreement.

Nevertheless, it could give you considerable peace of mind if you recently shelled out for a new car. Specifically, car gap insurance is sensible for those with significant negative equity in a car. That includes drivers who put little money down or have a protracted loan payoff period. If you're interested in cutting your car insurance costs , not paying for gap insurance once you don't really need it is one way to save some money.

Insurance Information Institute. Lending Tree. Bank Rate Monitor. Auto Loans. Car Insurance. Your Privacy Rights. To change or withdraw your consent choices for Investopedia. At any time, you can update your settings through the "EU Privacy" link at the bottom of any page. These choices will be signaled globally to our partners and will not affect browsing data.

We and our partners process data to: Actively scan device characteristics for identification. I Accept Show Purposes. Your Money. Personal Finance. Your Practice. Popular Courses. Part Of. Car Leasing vs. Used Cars. Car Financing. Car Valuation. Car Buying Strategies. Insurance Car Insurance. Table of Contents Expand. What Is Gap Insurance on a Car? Do You Need Gap Insurance?

Pros and Cons of Gap Insurance. Gap Insurance FAQs. The Bottom Line. Key Takeaways Gap insurance—also known as guaranteed auto protection—reimburses a car owner when the payment for a total loss is less than the outstanding loan or lease balance. Gap insurance makes the most sense for people who put no money down and choose a long payoff period. For a couple of years, they may owe more on the car than its current value.

It also makes sense for those who lease rather than purchase a vehicle.