Catherine C Ford, Writer
@catherine_ford_1
The difference between gap insurance and new car replacement coverage is that gap insurance covers the balance left on a loan or lease, while new car replacement coverage pays for the full cost of a new car. Also, new car replacement coverage is not required when financing a car, while gap insurance often is.
Gap Insurance vs. New Car Replacement Coverage
| Insurance Type | Gap Insurance | New Car Replacement |
| What does it cover? | The remaining loan or lease balance if your car is totaled or stolen and you owe more on the car than its actual cash value | The full cost of a new car if your car is totaled or stolen (companies often have age and mileage requirements for your car) |
| When is it recommended? | When your lender or lessor requires it, you made a small down payment, or your car depreciates quickly | When your car is less than a year old and has no more than 15,000 miles. The car will also need to have full coverage and no previous owners. |
| Average cost | $400 to $700 total from a dealer $20 to $40 per year from a car insurance company | About 5% of your current auto insurance premium |
| Is it required? | Not by law but often required by lenders/lessors | No |
It might be beneficial to carry new car replacement coverage in addition to gap insurance because gap insurance cannot pay the full price for a new car. It’s possible to put a refund from a gap insurance policy toward a new car if you pay off your auto loan early, trade your car in or switch insurance companies. But the refund may not pay for the total cost of a brand-new car.
Purchasing both policies will ensure that you’ll have coverage for your loan or lease and be able to replace your vehicle if it gets stolen or totaled. Some companies, like Travelers and American Family, for example, include gap insurance when you purchase new car replacement coverage.
To learn more, check out WalletHub’s guides on gap insurance and new car replacement coverage.
People also ask
Is better car replacement gap insurance?
No, better car replacement is not gap insurance. Better Car Replacement™ is a specific type of coverage offered only by Liberty Mutual that will replace your totaled car with a car that is one year newer and has 15,000 fewer miles on it than your current vehicle. Better Car Replacement will not pay off any remaining auto loan balance, and it is not even available for leased cars.
Gap insurance is a more widely offered coverage...
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