Your Guide to Gap Insurance

Find out how guaranteed asset protection auto coverage works

Police and a driver at a car accident scene with a damaged silver car

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No car owner wants to be stuck paying for a car that doesn’t exist. Even if you have comprehensive and collision insurance, that situation can occur if you total a car and its value is less than your auto loan balance at the time of the accident. Gap insurance is one way to guard against this. Find out more about how gap insurance works.

Key Takeaways

  • Gap insurance pays the difference between what you owe on your car and your car’s fair market value before being totaled or stolen and not recovered. 
  • You may be underwater on your loan—meaning you owe more than the car is worth—because of depreciation, a down payment smaller than 20%, or a lengthy loan term.
  • Auto insurance companies, dealerships, financial institutions such as banks and credit unions, and other third parties provide gap insurance products.

What Is Gap Insurance?

Guaranteed asset protection, or "gap insurance" for short, is an auto insurance coverage that pays the balance on your car loan when it’s totaled or stolen. It shields you from needing to make loan payments on a car you no longer have. You may also hear it called a “gap waiver,” “loan assistance coverage,” “lease assistance coverage,” or other names.

You may wonder why gap insurance is necessary if you have comprehensive and collision insurance, because these help pay to replace your car. Under these two insurance types, insurers typically pay out your car’s actual cash value (ACV or fair market value) at the time of the incident, up to your policy’s limits. ACV accounts for depreciation, or loss of value from factors like your car’s age and mileage.

As a result, the payment you receive from your insurer may be less than what you owe on your auto loan. Without gap insurance, you’d have to pay this difference to your lender out of pocket.

How Does Gap Insurance Work?

Cars lose as much as 60% of their purchase-price value in the first five years, and depreciation goes on every year after.

Say you got into a car accident and your car was declared a total loss. You owe $15,000 on your loan at the time of the incident, but the insurance company decides your car’s fair market value is $5,000. Because your deductible is $1,000, the insurer sends $4,000 ($5,000 - $1,000) to your lender. That leaves you with a remaining balance of $11,000 to pay off.


How insurance companies decide your car’s depreciated value varies by insurer. They may look at your car’s year, make, model, mileage, modifications, features, damage before the claim, and recent sales price of comparable vehicles.

If you didn’t have gap insurance at the time of the accident, you’d have to pay off the rest of the loan. If you did have gap coverage, the insurer would first pay a settlement check for the ACV of the car minus your deductible, or $4,000 as mentioned before. Then it would total the gap coverage amount needed to pay off your auto loan balance before sending the final check to your lender. In our scenario, that’s $10,000. The insurer only covers a total of $14,000, because you’re responsible for your $1,000 deductible.


If you have gap coverage, you must keep making loan payments until your insurer settles your claim.

What Gap Insurance Does and Doesn’t Cover

Gap insurance covers the negative equity on your car. That means the difference between your auto loan balance and your car’s actual cash value. Like other types of insurance coverage, gap insurance has maximum benefit limits. Be sure to check these values when shopping around, to make fair comparisons.

Gap coverage only extends to your car—not to other people or property—and only goes into effect when your vehicle is considered a total loss. That typically happens after a crash or if your car is stolen and not recovered. 


Gap insurance only applies to auto loans used to purchase the covered car. So it likely not an option for you if you took out another type of loan to buy your vehicle, such as a home equity loan.

Because of these limits, gap insurance doesn’t cover:

  • Items rolled into your loan, such as extended warranties, loan rollover balances, credit life insurance, and late penalties and fees
  • Bodily injuries, medical expenses, funeral costs, lost wages, and other accident-related expenses
  • Falling behind on payments due to financial hardship
  • Vehicle repairs
  • Car rentals while you don’t have a car
  • A down payment on a new car

What Companies Sell Gap Insurance?

Lenders may require you to buy gap insurance when you finance a car. If you lease one, it may be rolled into your cost. You can know for sure by checking your coverage paperwork.

You can purchase gap insurance from dealerships, financial institutions such as banks and credit unions, auto insurers, and other third parties. How long you have to buy this coverage varies. For example, you may have 30 days after buying a new car to get gap insurance with an auto insurer, while some third parties allow you to purchase it at any time—as long as it’s before a loss occurs. Your coverage may last for as long as you have your policy.

Some companies offering gap insurance are: 

  • AAA
  • Allstate
  • American Family Insurance
  • Esurance
  • Gap Direct
  • Nationwide
  • PenFed Credit Union
  • Progressive
  • State Farm (Payoff Protector included with State Farm Bank loans)
  • The Hartford

How Much Does Gap Insurance Cost?

Gap insurance typically costs 5% to 7% of your comprehensive and collision insurance premium when buying from an auto insurer—about $5 per month on average. Your insurer may take into account your car’s ACV and your age, state of residence, and previous car insurance claims to set your gap insurance premium.

Gap insurance is generally a flat $400 to $600 at car dealerships when financing, but may be included in lease contracts. You can ask your car dealer how much gap insurance costs. At credit unions, you may find gap insurance for less than $200.

Insurance companies often require you have comprehensive or collision coverage before you can add gap coverage. Other third-party sellers may not care. In any case, your lease contract or lender likely requires you to carry comprehensive and collision insurance.


Buying gap insurance through your insurer is often cheaper and simpler than buying through dealers and banks. The cost gets added to your premiums, and you don’t have to pay interest on the gap coverage like you would if it were attached to a loan.

How to File a Gap Claim

How you file a gap claim varies by company and where you purchased the coverage. With car insurance companies, you’d file a claim like you would with any type of car incident. You usually can do so online, through the insurer’s app, or by calling a representative. 

If your gap insurance is from another party, you likely have to go through their claims process after contacting your insurer. They may ask you to call them directly or to contact the gap insurance company instead. You may also be asked to fill out and submit a form. Companies may ask for a police report as well as documents from your dealership, financing company, and insurance company, such as a copy of your settlement check.

Frequently Asked Questions

Is gap insurance worth it?

Gap insurance is the most valuable when there’s a large difference between your car’s ACV and your loan balance. That could happen if your down payment were less than 20% or if you have a financing term longer than 60 months. If you’ve paid off your car or bought a used vehicle, if you have a short auto loan of fewer than 36 months, or if you have made a large down payment, it might not be needed.

Do I have gap insurance now?

Take a look at your car insurance policy or financing documents, or call your agent or dealership to see whether you already have gap insurance. Keep in mind that it may be included automatically on a leased car through the dealership, leasing company, or car leasing insurance company.

Can I get a gap insurance refund?

You can often get a prorated refund for the unused portion of your gap insurance. If you bought gap insurance as a part of your loan, you might have a limited time frame, such as 30 days, to cancel for a full refund. After that, you’ll still get a prorated refund, but it may be applied to your last payments. In that case, you wouldn’t notice a difference in your monthly payment amounts, but you’d pay the loan off a little sooner.

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  1. Kelley Blue Book. "Q: What Is Car Depreciation?"

  2. AIS Insurance Specialists. "What Is Gap Coverage?"

  3. Edmunds. "Should You Buy Gap Insurance for Your New Car?"

  4. United Policyholders. "What's Up With Gap Insurance?"

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