Gap Insurance Coverage

If your car is totaled or stolen, and its value is lower than the amount remaining on your loan, Gap Coverage will cover the remaining amount you owe.1

What is Gap Insurance Coverage?

If you have a loan on your vehicle, and your remaining loan amount is greater than your vehicle's actual cash value (what it's worth today), Gap Coverage (gap insurance coverage) pays the difference.

When you purchase a new vehicle, typically, its value starts depreciating as soon as you take it for its first drive - but the amount you owe on your loan doesn't! Gap insurance coverage protects you in the event that you have a car loan and your vehicle gets totaled or stolen when you owe more than your vehicle's current worth (which is what basic auto insurance covers).

Gap insurance coverage will cover the difference between the amount you owe on the car and what it's currently worth. If you find yourself in this situation, the price difference can be steep. Gap Coverage can help you avoid paying out of pocket.

How does gap insurance work?

Let's say you take out a $25,000 loan to purchase a new vehicle. You get into an accident and your vehicle is totaled. At the time of the accident, your vehicle was valued at $15,000 but you still owe $20,000 on your loan.

If the incident is covered by your insurance policy, you'd get paid the value of your vehicle at the time of the incident ($15,000) but you'd still be on the hook for that $5,000 difference you owe on your loan. With Gap Coverage, that difference would be covered.

Couple shakes hand of car salesperson as they buy a new car.

If your car is totaled…

Let's say you bought a new car for $25,000, and you have $20,000 in payments. You get into an accident when your car's “actual cash value” (what it's worth) is $15,000.

Gap Coverage takes care of the difference

Gap Coverage would make sure you're covered for that $5,000 difference between remaining payments and the car's actual value.

What else to know

This optional coverage must be purchased at the same time as your car, and you must be the car's first owner.

Do I need gap insurance?

Some leasing or loan companies may require you to get Gap Coverage with your insurance policy, but it's not required by any states. Check your financial paperwork to make sure you're covered if needed.

One thing to consider when thinking about getting gap insurance is whether you'd be comfortable potentially paying out of pocket in the event of an accident for the difference between your remaining loan amount and your vehicle's actual cash value. But unless your lender requires it, if you own your vehicle or owe less on your vehicle than its actual cash value, you probably don't need gap insurance.

Two woman ride happily down the road in a convertible.

What does gap insurance cover?

In the event your vehicle is totaled (damaged beyond repair or it would cost more to repair it than it's worth) or stolen, gap insurance protects you financially by covering the difference between what your vehicle is worth and what you owe on your loan.

Does gap insurance cover theft?

Yes, gap insurance may cover theft in the event your car is stolen and unrecovered.

Does gap insurance cover engine failure?

No. Gap insurance is only used in the event of a total loss from a covered accident, not for mechanical repairs.

Two woman ride happily down the road in a new car.

Does gap insurance cover deductible costs?

No. Even in the event of an accident covered by your gap insurance policy, you would still have to pay your deductible (the amount you pay out of pocket before your coverage kicks in). In other words, if the “gap” reimbursement amount is $4,000 and your deductible is $500, your total reimbursement amount would be $3,500.

Does gap insurance cover medical costs?

No. Gap insurance is only applicable to vehicle losses and does not cover bodily injuries, medical expenses, lost wages, or funeral costs.

Woman sitting in car reading a document about gap insurance.

Is gap insurance worth it?

Gap insurance provides a lot of benefits, but whether it's worth getting depends on you and your situation.

Reasons to consider purchasing gap insurance include:

  • Protection from your vehicle's value depreciating faster than you pay off your loan.
  • Your lender might require it. Check your loan terms and make sure you're covered if needed.
  • If you have a large loan or long-term financing, chances that you'll owe more than your vehicle's worth are higher.

What is negative equity, and does gap insurance cover it?

Negative equity is another term for when you owe more than your vehicle's current value. And yes, negative equity is covered by Gap Coverage.

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1Optional coverage in some states; availability varies by state. Eligibility rules apply.