If your insurance company decides your vehicle or motor home is a total loss, your collision coverage will only pay you the current market value. It won't cover any amount you may still owe on your loan.

Gap coverage doesn't cover any interest the lender charges you. It also doesn't cover later fees or missed payments.

Insurance companies are not required to offer you Gap coverage, but they must sell it to you if you ask.

Here's an example of how gap coverage works:

Loan balance of a 2006 vehicle or motor home on the date it’s destroyed: $18,000
Actual cash value on date it’s destroyed: $16,000
Payoff WITHOUT Gap coverage: $16,000 (minus your deductible)
Loan balance after payment: $2,000 (may vary if you have a deductible)
Payoff WITH Gap coverage: $18,000
Loan balance after payment: $0 (may vary if you have a deductible)

If you think you may need the additional coverage, ask your insurance agent or company about gap coverage when you shop for a new vehicle or motor home.

Don't want gap? Here's something else to consider

If your insurance company totals your vehicle and you don’t have gap coverage, you could contact your lender about extending your existing loan to your replacement vehicle.

This is called a collateral exchange. The lender will add the payoff amount (after the insurance payment) on your existing loan to your replacement vehicle loan.

Most lenders will do this, but not all. Contact your lender to find out if this is an option.

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Gap insurance

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Here's an example of how gap coverage works:

Don't want gap? Here's something else to consider