Vehicles depreciate over time, so your vehicle might be worth less than what you owe on your auto loan or lease agreement after some time. Guaranteed asset protection insurance — also called gap insurance — covers the difference between the vehicle’s value and what you owe on the loan if your insurance company declares your car a total loss after a covered claim.1

If you financed or leased your vehicle, gap insurance can provide much-needed financial protection. Here’s what you need to know about gap insurance.

How gap insurance works

Gap insurance covers the difference between the insurance settlement after a total loss and your auto loan or lease, protecting you from being financially responsible for a car you can’t drive anymore. 

If your auto insurer declares your car a total loss from an accident or theft, your comprehensive or collision coverage will pay out your vehicle’s actual cash value (ACV), minus your deductible. Notably, your insurer won’t reimburse you for your car’s purchase price.2

But cars can lose value quickly. A new car’s value decreases by about 20% within the first year.

If you took out a loan to purchase or you leased your car, its value might be less than what you owe on the loan or lease after a short period. Then, if your insurance company declares your car a total loss after an accident or theft, it’ll only pay out the car’s actual cash value, minus the deductible — and you’re financially responsible for the remainder of the loan or lease.

What gap insurance covers in Indiana

Gap insurance is an optional coverage type that you can usually add to an insurance policy with either comprehensive or collision coverage. The extra coverage will only kick in to pay the remaining value of your loan if the insurance company totals your car as part of a covered claim.

Gap insurance doesn’t cover damage in every situation. It won’t cover everyday wear and tear or mechanical breakdowns. It also won’t apply to claims that the insurance company won’t cover through your comprehensive or collision insurance.

Best gap insurance companies in Indiana

If you’re looking for the best gap coverage in Indiana, start your search with these three companies.

Auto-Owners

Allstate

Progressive

Gap insurance vs. full coverage

A full-coverage auto insurance policy usually includes liability coverage, collision coverage, comprehensive coverage, and uninsured/underinsured motorist coverage. Gap insurance is typically not included in a full-coverage policy. Instead, you can add this specialty coverage to your current policy.

If you own a vehicle with an outstanding auto loan balance higher than its current value, gap insurance can offer additional financial protection.

Who needs gap insurance in Indiana?

Indiana law doesn’t require drivers to carry gap insurance. While this type of insurance coverage is an optional add-on, it can be a worthwhile addition.

You may need gap insurance as an Indiana driver if:

• Your down payment was less than 20%. Making a low down payment when you purchase your car means your car’s value depreciation is likely to outpace your repayment of the loan.

• The loan’s terms are longer than five years. If your loan or lease terms are longer than 60 months, you have a higher chance of owing more on the loan than the car is actually worth.

• You already have negative equity from your last car loan. If you’ve taken out a car loan before and rolled it into your new car loan, it’s important to get gap insurance to protect yourself from an even bigger difference between your debt and your vehicle’s value.

• You regularly travel long distances. If you drive your vehicle more than average, the value might depreciate more quickly. Gap insurance can protect you when your car’s mileage causes its value to drop below the auto loan balance.

• You’re leasing or financing a luxury car. Certain car models, such as sports cars, depreciate faster than more standard ones.

How to buy gap insurance in Indiana

While car dealerships might sell you gap insurance, it’s usually more affordable to purchase it through an auto insurance company. Insurers that offer gap insurance typically sell it as an add-on to a full-coverage car insurance policy.

As you explore your options, it’s best to shop around. Car insurance companies calculate rates differently, resulting in significantly different costs among companies. Taking a few minutes to shop around for quotes could help you save on your car insurance costs.

Adding gap insurance coverage to your insurance policy will raise your rates but only by about $20 per year, according to the Insurance Information Institute.

But purchasing a policy with the right coverage for your situation is a good idea. Once you find the company that offers coverage that suits your needs and budget, you can finalize your policy.