Gap Insurance

You can buy gap insurance from most major insurance companies, including Progressive, Nationwide, State Farm, and Allstate. Another place where you might be able to purchase gap insurance is through your car dealership. However, if you buy gap insurance from a dealership, you might end up paying extra because the cost is added to your principle, which is then used to calculate your interest. So, you might save money by asking your insurance company to add gap insurance to your policy.

Gap insurance provides protection on a car you lease or buy with a loan. In the event of an accident in which your car is totaled, the value of your car would drop below the money you owe on the lease or loan. Standard insurance policies would pay only the value of the car post-accident. Gap insurance would ensure that you can pay back the full amount you owe. That is why auto lenders typically require it.

If you already have car insurance, the easiest way to buy gap insurance coverage is to contact your existing insurance provider and ask about adding it to your policy. If you do not have car insurance, compare quotes from major insurance companies that offer gap insurance. You can find the most prominent options listed below.

Major Car Insurance Companies Offering Gap Insurance 

• AAA
• Allstate
• American Family
• Esurance
• Liberty Mutual
• Nationwide
• Progressive
• Safeco
• State Farm (car loan customers)
• Travelers

You can also buy gap insurance from the bank or credit union financing your car. However, like car dealers, other lenders usually calculate the cost of gap insurance as one upfront payment, then add the sum to your loan amount. As a result, it's best to avoid this type of gap insurance to keep from paying interest on your premium. 

Gap insurance costs $400 to $700 when purchased from a car dealership, in most cases. Gap insurance coverage from a car insurance company costs an average of $20 to $40 per year when it's added to an existing car insurance policy.

Gap insurance covers the difference between what a leased or financed car is worth and how much the driver owes. Like any other type of insurance, the cost of gap insurance varies depending on the car's value and the driver's risk characteristics, such as age and claims history.

How to Get Cheap Gap Insurance

Some car leases include gap insurance at no added cost. But besides this free coverage, buying gap insurance from your normal car insurance company is usually the cheapest option. On average, gap insurance will only add around 5% to 6% to your comprehensive and collision cost. But since gap insurance is a relatively uncommon kind of coverage, not every insurance company offers it.

If your insurer does not provide gap insurance, it's a good idea to compare quotes and see if it would be worth switching companies. If not, some companies offer standalone gap insurance policies. Also, if you are financing a car through a bank or credit union, these institutions will usually offer gap insurance upfront for anywhere from $200 to $700.

How Much Is Gap Insurance from a Dealer?

Dealerships are often the most expensive source of gap insurance, costing around $400 to $700 up front. If you are buying gap insurance that is rolled into your loan, bear in mind that you will be paying interest on the gap insurance premium as well as the rest of the loan's balance. As a result, you'll actually end up paying more than the original cost. This also comes into play wherever else you might get auto financing and gap insurance at the same time, including banks and credit unions.

However, price is not the only factor that should affect your decision of where to buy gap insurance. You should also consider how long your gap coverage will last and how long you will need it. Similarly, some gap insurance policies will pay your deductible, although many will not. And most gap insurance policies do not pay for anything you owe from a previous car loan.

Gap insurance is worth it if you paid a small down payment on your car, your loan term is 4-5 years, or your car will depreciate quickly. Gap insurance is never mandated by state law, and few lenders or lessors require it, so the decision to buy it depends on personal circumstances.

Gap Insurance Is Worth It When:

• You don't have the savings to pay off your loan or lease if the car is totaled or stolen.
• Your down payment is less than 20% of the car's value.
• Your loan will last four years or more.
• You drive more miles than average, which reduces the car's value faster.
• Your car is a make and model that depreciates especially fast, like a luxury sedan or electric vehicle.
• You are a single-car household and need a car to get around.
• Your loan includes negative equity from your last car and your gap insurance provider doesn't exclude previous cars' loan balances from coverage.

Since gap insurance covers the difference between the car's actual cash value and the amount you owe, researching these two numbers will be a key deciding factor in whether gap insurance is worth it.

For example, say you buy a car for $20,000 and your down payment is $2,000. This small down payment suggests that gap insurance might be worth it, but it's still a good idea to check the car's anticipated value after a year to determine if there will be a gap. If the car is worth $12,000 after a year but you'll still owe $15,000, gap insurance could be a smart investment. If you don't buy gap insurance and this car is totaled after a year, you'll still owe $3,000 even though you can no longer drive it.

On the other hand, if your down payment is large enough or the car's resale value is high enough that you'll never owe more than the car is worth, gap insurance is unnecessary. Similarly, if you do owe more than the car is worth but you have the resources to pay the difference if the worst happens, it might be worth taking the risk.

Yes. You need gap insurance if you have full coverage and still owe money on a car loan or lease. Gap insurance is needed on top of full coverage because the types of insurance that go into full coverage do not cover the difference between what you owe on a loan/lease and the car's actual cash value, like gap insurance does.

Gap insurance – short for guaranteed asset protection insurance, and sometimes called loan/lease payoff coverage – protects you financially from having to cover the cost of depreciation, or the difference between what you still owe on your contract and what your insurance company says the vehicle is actually worth today. Collision and comprehensive protection – the main components of full coverage, along with liability insurance – won't cover that. As a result, you need gap insurance even if you have full coverage, especially if your situation leads to a relatively large gap to cover

When You Need Gap Insurance If You Have Full Coverage

• You're financing/leasing a new vehicle for a long term (60+months).
• You made a small down payment on a new vehicle (less than 20%).
• You rolled over negative equity from a previous auto loan.
• You financed a vehicle that has a high depreciation rate.
• Your contract has a high interest rate.
• Your lender or lessor requires gap insurance.

It's important to remember that while gap insurance isn't required by any insurer or state, having gap insurance on top of full collision and comprehensive coverage will probably be required by your lender if you're financing/leasing a new vehicle, and even some used vehicles. In addition, gap insurance is meant specifically for drivers who still owe a balance on their vehicle, so if you own your car outright and have full coverage, you don't have a need for gap insurance.

Yes, you can buy gap insurance at any time before a car loan or lease is paid off but only from some gap insurance providers, as others will only sell coverage to the first owner of a car with a recent model year. The standalone gap insurance provider Gap Direct sells policies regardless of the car's age, for example. Gap Direct will cover a car as long as it has not already been declared a total loss.

On the other hand, gap insurance policies directly from dealerships or from major insurers like Allstate in coordination with a dealership usually need to be purchased at the same time as the car. Specific requirements vary by insurer, though, and it should be possible to find coverage for a car that you financed, leased, or refinanced during the past year or two.

In short, as long as you're willing to check with multiple insurers, you can get gap insurance after you buy a car.

It's also worth noting that you are unlikely to need gap insurance for a car that is more than a few years old, since gap insurance is designed to cover the difference between a car's actual cash value (ACV) and the balance on a loan or lease. Car depreciation slows after the first year of ownership, meaning that an older car likely does not have a large gap between its value and the balance on a loan or lease.

For more information, check out WalletHub's tips on whether gap insurance is worth it and where to buy gap insurance.

No, GEICO does not offer gap insurance at this time and it's unclear whether GEICO has any plans to add gap insurance coverage in the future. Gap insurance covers the dollar amount "gap" between what the car is worth and what is owed on the loan. Gap insurance is also often referred to as “loan-lease coverage,” which offers similar protections.

In 2019, only four out of the top 10 U.S. car insurance companies explicitly offer gap insurance as a coverage option: Progressive, Travelers, Liberty Mutual, and Nationwide. If your auto insurance carrier is not listed here, it's a good idea to give them a call to ask whether gap insurance is available. Some auto insurance companies, like Allstate, may provide gap insurance even if they do not openly advertise it.

You can also check in with your car dealership's financing department to see what kind of offers on gap insurance are available. However, it's important to do some comparison shopping because gap insurance from a car dealership tends to be more expensive than purchasing a policy from a car insurance company.

Finally, if you lease a car, be sure to check your leasing agreement. Gap insurance is often already included in the contract.

To get a gap insurance refund, contact the insurance provider and give them the policy number and documents showing that the car was traded in, sold, or paid off early. Gap insurance refunds are usually only possible for policies that were paid in full up front. Drivers cannot get refunds simply because they never filed a gap insurance claim.

If you are cancelling within 30 days after the policy's start date, you might be able to get a full refund, minus any cancellation fees. In other cases, only a partial refund may be possible. The details will depend on your policy and your state's laws.

When You Can Get a Gap Insurance Refund           

• You are paying off, selling, or trading in the covered car.
• You are switching to a different gap insurance company.
• Your loan balance is no longer more than the car's actual value, though it's best to leave a cushion of $1,000-$2,000.

If you need a gap insurance refund because you're selling or trading in the car, be sure to wait until the car no longer legally belongs to you before cancelling your gap insurance. Then, you will need to give the appropriate paperwork to your insurance provider, such as a proof of sale or auto payoff letter. Some gap insurance companies might also require an odometer verification showing the mileage on your car, which you can get from a dealership before you sell or trade in the vehicle.

Similarly, if you're refinancing, wait to cancel your gap insurance until your previous loan is no longer in effect.

On the other hand, drivers cannot get a gap insurance refund if the insured car is declared a total loss before the policy's expiration date. In this case, the gap insurance will pay for the difference between the car's value and the loan balance, but drivers will not be eligible for a refund for the remaining months of coverage.

How Long Does It Take to Get a Gap Insurance Refund?

Gap insurance refunds usually take 4-6 weeks. Staying in contact with your gap insurance provider and promptly returning signed paperwork can expedite the process, though.

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.

The best gap insurance is offered by Progressive, Allstate, and Liberty Mutual. It's best for drivers to buy gap insurance directly from their standard insurance provider, or as a standalone policy from another insurance company if their insurer does not offer gap coverage.

Drivers should usually avoid buying gap insurance from a dealership or bank, so they do not end up paying interest on their premium. And like with any insurance product, it's best to compare multiple quotes.

Best Gap Insurance Companies

• Progressive
• Allstate
• Liberty Mutual
• Nationwide
• Travelers
• American Family

Tips for Getting the Best Gap Insurance

Comparing options to find a low price is always important, but price should only be one factor that you consider when deciding on the best gap insurance. You should also compare coverage limits.

For instance, Progressive and American Family offer variations of gap insurance called “loan/lease payoff” and “loan or lease assistance coverage” respectively. Both insurers limit gap payouts to 25% of the car's actual cash value (ACV). For most drivers, 25% will be plenty to cover any gap between their loan balance and the ACV. But it's worth checking that 25% will be enough for you if you're shopping for gap insurance. You can use online tools like Edmunds or Kelley Blue Book to estimate your car's future value and compare it with your loan balance.

In addition, consider whether you want gap insurance to cover your deductible. Most policies will not pick up the tab for your collision or comprehensive deductible if your car is destroyed or stolen, but Allstate is a notable exception.

To prevent future inconvenience, you should also check policy details and read reviews before purchasing gap insurance to determine if a company allows customers to easily cancel their coverage. Gap insurance is useless once your loan balance is less than the car's value, so many drivers cancel their gap payments after a few years.

Finally, remember that dealerships and banks rarely offer the best gap insurance. One exception to this is if the bank or dealer includes interest-free gap insurance as part of your policy. For instance, car loans made with State Farm Bank automatically include “Payoff Protector,” which functions the same way as gap insurance.

Yes, Progressive offers gap insurance for about $5 per month, on average. If your car is totaled, Progressive's gap insurance, also called loan/lease payoff coverage, covers the difference between your loan balance and what your car is worth, minus your deductible. Progressive gap insurance will pay as much as 25% more than your car's depreciated value.

Let's say you finance $30,000 for a new car, which is now worth $20,000. You total your car and find that you still owe $25,000 on the loan. Full coverage only pays up to your car's depreciated value—$20,000. That leaves you with a $5,000 difference. If you carry gap insurance, Progressive will pay the complete $25,000 balance, minus your deductible (usually $500 or $1,000).

You might consider Progressive gap insurance if there is a significant difference between your car's actual cash value and what you owe on a loan used to get it. In particular, if you just bought a new car (especially with a low down payment) or are financing a vehicle for more than 48 months, you might want gap insurance. You must carry comprehensive and collision coverage to add gap insurance to a Progressive policy.