For Consumers

Gap insurance

Gap insurance is what you buy from your auto insurance company as an added endorsement to your existing auto insurance policy. It covers the gap between what you owe on the loan or lease for your auto or motorhome and its actual cash value — defined as the cost of replacing your vehicle with a comparable one, minus depreciation.

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

  • Will only pay you the current actual cash 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, any late fees or missed loan payments. It also doesn't cover any extended warranties added to your auto loan.

Make sure you know what you're buying

Auto dealerships and/or lenders may try to sell you what they call gap insurance, but it's not actual insurance. What auto dealerships commonly offer is most likely a debt waiver agreement they advertise as gap insurance. However, there are significant differences between these two products.

Debt waiver agreements sold at a dealership are often overpriced, and you can't cancel or return it if you pay down your auto loan quickly and build equity. A gap insurance endorsement, however, usually only raises your premium slightly, and you can cancel it if you put yourself in an equitable situation with your auto loan. 

It's a good idea to ask your insurer about gap insurance options before you shop for a new vehicle or motorhome so you can compare their insurance products against what the auto dealer will offer. Your insurance company may never mention gap insurance or 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 and your vehicle is totaled? Here's something else to consider

If you didn't get gap insurance when you first had the chance and your car has been totaled in an accident, 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.