For Consumers

Gap insurance

Gap insurance is what you buy from your auto insurance company as an endorsement you add to your existing auto insurance policy. It covers the gap between what you owe on the loan for your brand new (or under one year) auto or motorhome and its current market value.

If you're in an accident and your insurance company decides your vehicle or motorhome is totaled (also called "total loss"), your collision coverage:

  • Will only pay you the current market value.
  • Won't cover any amount you may still owe on your loan.

Example: How gap coverage works

  • Auto loan balance on a brand new vehicle: $30,000
  • Actual cash value at time of accident: $25,000
  • Payoff without gap coverage: $25,000 (minus your deductible)
  • Loan amount you still owe: $5,000
  • Payoff with gap coverage: $25,000 + $5,000
  • Loan amount you owe: $0

What gap insurance doesn't cover

It doesn't cover any interest the lender charges you, or any late fees or missed loan payments.

Make sure you know what you're buying

Auto dealerships and/or lenders may call it gap insurance, but it's not gap insurance. Only auto insurance companies can sell insurance. It's most likely a debt waiver agreement that dealerships and/or lenders advertise as gap insurance.

If you think you want or may need gap insurance, ask your insurance agent or company about it when you shop for a new vehicle or motorhome. They don't have to offer it to you, but they must sell it to you if you ask.

If you have questions, before you buy, give us a call at 800-562-6900.

Don't have gap insurance? Here's something else to consider

If you don't have gap insurance, ask your lender about extending your existing loan to your replacement vehicle. This is called a collateral exchange. The lender adds the payoff amount (after the insurance payment) on your existing loan to your replacement vehicle loan.