WalletHub, Financial Company
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Gap insurance lasts for the length of the loan or lease when purchased from a dealership, and it lasts for as long as it remains on the policy when purchased from a standard car insurance company. Gap insurance is usually only needed for one to two years, since it’s useless when a car is worth more than the loan/lease balance.
Gap insurance pays for the difference between a car’s loan or lease balance and its actual cash value if it is declared a total loss. Since new cars depreciate quickly, gap insurance can keep drivers from needing to make payments on a car that is no longer drivable. But depreciation slows down over time, so the gap between car value and loan/lease balance eventually disappears as the driver pays off the car.
As a result, you should keep an eye on the amount you owe and also estimate the car’s value using online tools like Kelley Blue Book. In general, it makes sense to cancel gap insurance coverage once your loan or lease balance is $1,000-$2,000 less than the car is worth.
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