120+ moreGuaranteed asset protection, more commonly known as gap insurance, is an optional type of auto coverage. Gap insurance covers the difference, or gap, between what you owe on an auto loan and your insurance reimbursement when your car is totaled or stolen.
Gap coverage protects you financially and is useful for auto loan borrowers who have recently financed a vehicle. Not all lenders require gap coverage, but if you lease your vehicle, you’ll likely need this coverage.1
Find out more information and see if gap insurance is right for you.
Gap insurance helps protect you financially from depreciation. It covers the difference between your collision or comprehensive insurance payout and the balance on your auto loan after vehicle theft or total loss. Without gap protection, you could be liable to pay the loan balance on a car that you can’t use anymore.
Buying a car is a significant investment, and relying on auto financing is common. The Consumer Financial Protection Bureau estimates that more than 100 million Americans had an auto loan in 2022.2 But your vehicle begins depreciating, or losing value, the minute you drive it off the lot.
Your insurer’s payout is based on the vehicle’s market value, not what you owe on the loan. So an insurance payout (minus your deductible) might not be enough to cover your loan balance, leaving you to pay out of pocket for anything left on your loan.
But with gap insurance, if your vehicle is a total loss, gap insurance will help you pay the difference between your payout and the loan amount. So, instead of paying out of pocket for the rest of the loan, you’re protected.
Here, you can see an example of how gap insurance works after a total loss, with the actual cash value, outstanding loan amount, insurance deductible, and how much gap insurance would cover or what you might need to pay out of pocket.
Gap insurance is worth it if you’ve taken out an auto loan to buy a new or used car. If you lease your vehicle, the lender may require you to carry gap insurance. Keep in mind that cars depreciate faster than some other assets — sometimes up to 20% in the first year of ownership — so having gap insurance can help protect your investment.3
Some situations where it makes sense to get gap insurance coverage include:4
You made a small down payment (less than 20%).
Your repayment term is 60 months or more.
Your lease agreement requires it.
You have negative equity.
Your car’s make or model year depreciates faster than others.
Gap insurance is helpful in very specific situations — when your loan amount is greater than what your car is worth or when your lender requires gap coverage. But gap insurance isn’t typically worth it in the following situations:
You’ve paid for your vehicle outright in cash.
You made a significant down payment (20% or more) when financing your vehicle.
Your loan balance is less than the vehicle’s current value.
Gap insurance typically provides protection when your vehicle is a total loss. But gap insurance usually doesn’t cover many other situations, such as:
Damage to your vehicle if it’s not deemed a total loss
Your down payment for a new car
Economic hardship and difficulty making loan payments
Rental car costs
Interest charges or penalties on the loan
Full-coverage car insurance consists of various coverage types rolled into one package. This includes the state-required liability, collision, and comprehensive coverage and costs an average of $184 per month in the U.S., or $2,211 per year.
Liability insurance protects you by paying for any injuries to another driver and damage to another driver’s car. Collision insurance provides payment for damages to your car for collision-related incidents, whereas comprehensive coverage pays for damages or losses related to non-collision incidents, such as fire, floods, and theft.5
Gap insurance protects you in case of a total loss where your auto loan exceeds the car’s value. This pays the rest so that you’re not on the hook for the remaining loan. You may add gap insurance to a full-coverage policy.
While gap insurance often increases costs, it’s typically only a small bump in your rate. Below is a look at the rate differences of various insurance companies for full-coverage costs with gap insurance.
Gap insurance, which is sometimes referred to as loan or lease gap coverage, is available to purchase in multiple places. When you buy a new vehicle, the car dealership may offer you gap coverage if you’re financing through them. This add-on coverage is then added to your total loan amount.
Often, you can decline the dealer’s gap coverage and obtain a gap policy through your current auto insurance company, which can help you save on total costs. In addition, gap coverage is often available from your auto lender. For example, if you get an auto loan from a credit union, you likely can get gap insurance tacked onto your monthly payment or for a one-time fee.
The cost of gap insurance depends on where you buy it. Here are estimated costs from various gap insurance sources: