If your car is totaled, insurance pays what it’s worth, not what you owe. Gap insurance covers the difference.
Key facts
- Gap insurance pays the difference between your car’s actual cash value and what you still owe on a loan or lease.
- It matters most early in a loan, when the car has lost value faster than the balance has fallen.
- Leases often include gap coverage, so check before buying it separately.
- Insurers often sell gap coverage for less than dealers, so compare before you sign.
New cars lose value quickly. If yours is totaled or stolen early in a loan, the insurance payout may not cover what you still owe. Gap insurance fills that difference.
How the gap appears
| Example | |
|---|---|
| Loan balance | $28,000 |
| Car’s actual cash value | $23,000 |
| Gap | $5,000 |
Without gap coverage, you’d still owe the $5,000 to the lender, even though you no longer have the car. Figures are illustrative.
When it’s most useful
- small or no down payment
- long loan terms, such as six years or more
- cars that lose value quickly
- negative equity rolled in from a previous loan
Where to buy it
| Source | What to know |
|---|---|
| Your car insurer | Often added to a policy at a relatively low cost |
| Dealer or lender | Convenient, but often more expensive and sometimes added to the loan |
| Lease | Many leases already include it |
Smart tip
Ask your insurer for a gap coverage quote before you visit the dealer. If you’re offered it at signing, you’ll know whether the price is reasonable.
Check this
Gap insurance requires collision and comprehensive coverage, since it only pays the difference after your main policy pays the car’s value. See our guide to coverage types.
Deciding whether you need it
Compare your loan balance with your car’s current value. If you owe more than it’s worth, gap coverage can be worth having until the balance catches up; after that, it can usually be dropped. Our guide to what affects your rates can help keep the rest of your premium in check.
Questions we hear
Do I need gap insurance with a large down payment?
Usually not. If you owe less than the car is worth, there’s no gap to cover.
Can I cancel gap insurance?
Usually, yes, and you may get a partial refund. Many people cancel once their loan balance falls below the car’s value.
Does gap insurance pay my deductible?
Some policies do and some don’t. Check the terms.
This guide is general information, not insurance or legal advice. Coverage, prices and rules vary by insurer and by state, so read your policy documents and check with your insurer, a licensed agent or your state’s department of insurance before you decide.