Who does gap insurance cover?

Gap insurance covers the difference between your auto loan and the car's depreciated value. In other words, gap insurance helps you pay off your auto loan or lease if you're no longer able to drive your car due to it being totaled or stolen.

It’s important to note that gap insurance only pays when your car is totaled or stolen, so you cannot file a gap claim if you simply can’t make your loan or lease payments. Additionally, most gap insurance policies will not pay your ... read full answercollision or comprehensive deductible, if applicable.

Loan/Lease Payoff Insurance: Gap Insurance Alternative

Not all insurance companies offer gap insurance, but some offer loan/lease payoff insurance as an alternative. Loan/lease coverage is similar to gap insurance, except that it usually only pays up to 25% of the vehicle’s actual cash value toward the policyholder’s loan or lease balance, which might not be enough to cover the full amount owed.

If you’re curious about gap insurance or loan/lease coverage, you should check with your insurance company to see if they offer either.

To learn more, check out WalletHub’s guide to gap insurance.

The most gap insurance will pay is the full amount left on your loan or lease balance. The exact amount gap insurance will pay depends on your vehicle’s actual cash value, the remaining amount on your loan or lease, and your insurance company.

As an example, let’s say you purchase a car for $50,000 with a $10,000 down payment and, three years later, your car gets totaled. Your loan balance at the time is $25,000 and your car’s cash value was $20,000 prior to being totaled. Your insurance company would cover your car’s cash value ($20,000), as long as you have ... read full answercomprehensive or collision coverage. Then, gap insurance would pay the remaining $5,000 loan balance.

Some insurers offer loan/lease coverage, which is similar to gap insurance but doesn’t cover the total amount remaining on your loan or lease. Loan/lease coverage can pay up to 25% of your vehicle’s cash value toward your loan or lease balance, but the exact amount also varies by state.

For more information, check out WalletHub’s guide on gap insurance.

No, gap insurance does not cover engine failure. Gap insurance only covers the difference between an auto loan or lease balance and the vehicle’s value, and it only covers that gap if the car is totaled in an event covered by comprehensive or collision insurance, or by the at-fault driver’s ... read full answerliability insurance.

Although gap insurance does not cover engine failure directly, it does apply if a car is totaled. Furthermore, engine damage from a crash or an event covered by comprehensive insurance could contribute to the “totaled” designation. So, gap insurance could indirectly cover engine failure, assuming that’s not the only issue.

If you’re looking for car insurance that covers engine problems unrelated to an accident or comprehensive claim, you’ll need to purchase specialized coverage like mechanical breakdown insurance or an extended warranty.

For more information, check out WalletHub’s guides to gap insurance and car repair insurance.