Chris Tepedino is a feature writer that has written extensively about car insurance for numerous websites. He has a college degree in communication from the University of Tennessee and has experience reporting, research investigative pieces…

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Rachael Brennan has been working in the insurance industry since 2006 when she began working as a licensed insurance representative for 21st Century Insurance, during which time she earned her Property and Casualty license in all 50 states…

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Reviewed byRachael Brennan
Licensed Insurance Agent for 14 Years

UPDATED: Aug 7, 2020

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Everyone with a car insurance policy is likely familiar with Liability coverage, Personal Injury Protection, and more — but Automobile GAP Coverage is one of the lesser-known auto insurance coverage options on the market that, if you don’t know about it, you should!

So what is auto GAP insurance and when do you need it? Read on to find out when it’s the right coverage for you and when it might not be. If you’re looking for an insurance quote, you can start your search using our FREE auto insurance comparison tool.

When do you need automobile GAP coverage?

Who needs GAP Insurance? Well, any driver who believes their vehicle may suffer from depreciation (which is common when you buy or finance a brand new vehicle). Leased vehicles will also suffer a loss of value from depreciation. If you file a claim for any of the following:

  • Acts of God (I.e. natural disasters like hurricanes, floods, tornadoes, etc.)
  • Theft
  • Accidents
  • Vandalism

…your vehicle might get totaled and need to be completely replaced. In the event that this happens, either your Collision or Comprehensive coverage will pay for its replacement. But your insurance company will only pay the fair market value of your vehicle at the time it gets severely damaged; and that amount of money may vary drastically from how much you originally paid for your vehicle.

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How GAP Coverage Works

Take the following scenario as an example: imagine you’ve purchased a brand new car for $25,000. Your down payment was only $1,000, and you’re making payments in the amount of $300 a month. You’ve owned the car for an entire year without anything happening. Congratulations. With your down payment and monthly payments, your loan has been reduced to $20,400.

Now imagine you get into a serious accident and your car is completely totaled right after your vehicle’s 1-year anniversary. You go to your collision insurance provider and inform them of the accident. You pay your deductible, and then it is up to them to hold up their end of the bargain. The only issue is that the car’s market value has depreciated to $19,000. Your collision insurance covers you up to this amount, but you’re left with an unexpected $1,400 bill that you weren’t covered for. This is generally where GAP insurance kicks in, and cleans up the mess.

Making an Informed Decision

Bear in mind that while GAP auto insurance will cover you for the majority of your total losses, there are some exclusions. These will vary from policy to policy, so it is paramount that you review your own policy carefully. Though to give you an idea, here are a couple of common exclusions:

  • Past due loan payments and associated penalties
  • Anything installed that isn’t factory issue
  • Vehicles not insured by comp and collision
  • Deposits or penalty charges assessed on a lease agreement

When should you purchase automobile GAP insurance? GAP insurance makes sense if you know you will owe more than the vehicle is valued at for a prolonged period of time.

GAP insurance really shines when it comes to leases. In fact, it is a prerequisite to getting many lease agreements. One of the appeals of leases is their low monthly payments, usually lower than auto loan payments. This means there will be a large GAP between the car’s market value and what you’ve paid off.

In the case of purchasing a new car, the car depreciates the second you drive it off the lot. Consider interest rates, depreciation rate, and the amount of down payment you’re giving. If you give a sizeable down payment, perhaps it won’t make sense for you to have GAP coverage.

VehicleCost (New)Cost (after 12 months)What You Owe Without GAP Insurance
Toyota RAV4$24,060$18,796$5,264
Toyota Corolla$17,012$12,183$4,829
Nissan Altima$22,178$14,456$7,722
Honda Civic$20,230$13,995$6,235
Chevrolet Silverado$28,074$26,347$1,727
Ford F-150$31,151$21,100$10,051

How Much Will a New Insurance Policy Cost Near You? Compare different policies with our FREE comparison tool.