Where Should I Buy Gap Insurance?

Nov 5, 2022 | Personal Insurance

What is Gap Insurance, and where should I buy it?

According to research, your car’s value automatically decreases when it leaves the car lot. And by next year, it will lose more than 20% of its value. You need gap insurance.

For example, you acquired a car for $24,000, but the moment it rolled out of the store, you have already paid at least an extra $2,400 for taxes and fees. That is $26,400, the amount of money you cashed out. Now, remember that because this will shock you. 

After a year, you had a vehicular accident that totaled your car. If your insurer asks for the total value of your car, it would only appear to be $19,200. But don’t forget your deductibles. Let’s put it to a modest $500. Bringing it down to a value of only $18,700. 

You paid the car dealership $26,400, but your car’s estimated value is only $18,700. What happens now?

How Does GAP Insurance Work?

Gap insurances are non-compulsory insurance for your car. This helps cover and/or pay off your auto loan if there is an accident in your car. “Gap insurance or for other companies, also known as lease/loan gap coverage.” This insurance is only available to the car’s original buyer or leaseholder. Insurances like these help the owner get coverage in between the gaps where there is a depreciated value of your car and what you still owe.

Suppose your insurance company sums up the value of your automobile by a covered peril such as vandalism, tornado, hurricane, fire, accident, or even theft. In that case, the company will pay out the actual value of your vehicle, that is, if you have total and comprehensive collision coverage. If the ACV or Actual Cash Value is smaller than the amount you owe on your loan or lease, the difference from this financial shortfall is the “GAP” you can have remaining to owe. 

Covered or Not Covered

If they take your vehicle, GAP Insurance will pay the distinction between the vehicle’s ACV and the current amount on your lease. At times it will likewise pay your standard insurance deductible.

If they take your car, the insurer will cover or replace it with the total amount they cashed out or at least the advance payment they made. This cannot be further from the truth. You should also have complete and comprehensive collision insurance that can afford the gap coverage. If your car is on a lease, you must sign up for one.

Examples Of What Your Gap Insurance Will Not Cover:

  1. If payments are past due.
  2. Carryovers if you have a previous loan or lease.
  3. If the lessor did not withdraw the security deposit.
  4. No upgrades or outdoor installation on the car. 
  5. Faulty engine and transmission or car problems related to mechanical issues are not losses that are part of your insurance.

Yes, car theft is part of your coverage. If your car was stolen and was not recovered, alongside your comprehensive insurance is CAR THEFT. This will help you out by paying the actual cash value of your car.

How long does gap insurance last?

Your gap insurance will continue for the duration of your policy. Once your car loan has been paid off, or at least you have paid off your lease, you will not need this anymore. You should get a notification from your insurer that your Gap Insurance is irrelevant to you, and they should be able to suggest cancellation. Otherwise, you will be continuing your policy. 

If your car financing will be more than 4 or 5 years, it is advisable to get gap insurance. 

How much is the cost of Gap Insurance?

The cost of your Gap insurance will depend on your bank or financial institution. Remember those car dealerships or lending companies will charge a high price for your Gap Insurance. These companies will usually have a flat rate between $500 to $700, these are the highest rates for these kinds of policies, and you will pay for the interest since this will be added to your principal car loan.

On the other hand, insurance companies can charge an average of $20 to $40 per annum for your Gap Insurance if you bundle it with your outstanding insurance policy. If you bundle it, this will increase your comprehensive and collision insurance cost by only 5% or 6%, which makes it so much cheaper in comparison. However, this is available as standalone insurance, but the price should vary between $200 to $300.

Remember that certain factors can change the price of your gap insurance:

  1. Vehicle’s Actual Cash Value
  2. Location
  3. Car’s age
  4. Claim History

But is it worth it? – A critical question you ask yourself, especially before purchasing this additional coverage, is, “Is it worth it?” If you are not, you’re probably looking at this incorrectly. This can be daunting at times. Your inner voice always says, “I’m a safe driver…” or “What if I never needed it?” But allow us to tell you that getting additional coverage such as this is crucial in your daily life. 

How can I Purchase Gap Insurance?

As we discussed, gap insurances are not just available from your car dealers and financing companies, they are available as well in your insurance company where you got your car insurance, as long as you have a comprehensive collision insurance policy in place. You can ask your insurer about gap insurance. Always remember to review first where you can get a better deal. For more information, click here

How to know if you have Gap Insurance

Gap Insurance is not a state-mandated policy like liability insurance is. There are several ways to check if you have an existing Gap Insurance. This should be available for you to review on your existing car insurance and the terms and condition of your lease or running loan. Remember that this policy is usually sold as an add-on from your car dealership when financing your car. So, before you sign up for Gap Insurance or any additional insurance, please review the two mentioned.

When you might need Gap Insurance

It is very advisable to consider getting Gap Insurance for your new vehicle or even a truck purchase. If you have made less than 20% on your down payment, suppose it is financed for over 60 months.

How accident forgiveness works

Let’s say that you are an excellent and disciplined driver, and in the last 6 years, you have not committed an accident (not at fault or fault), and you have an “Accident Forgiveness” policy. This means that the insurer will “forgive you if ever you had an accident after the first 6 years. This means that your policy and your premium will not be changed or impacted. This as well applies if you have had a change of car for as long as you have never had an at-fault accident.


  1. You must have insurance and all other conditions satisfactory.
  2. The owner and driver of the car must be licensed and, of course, accident-free for the next 6 years.

There is much to consider in purchasing or availing of this specific add-on to your car insurance. Check factors before signing up for the best deal and value for Gap Insurance. The first thing you need to decide is whether the car is worth it or is what you want. Remember that cars are a long-term commitment. You must ensure that what you selected will fit your “now” situation but is still functional in your future plan. We are sure you want that two-seater car now, but you and your wife/husband or life partner might have an additional seat by next year. 

If you are financing a car, it is always advisable to get gap insurance, especially if you still owe a lot from your lessor. If your car is not adequately insured and you become a victim of car theft, paying for it will be a pain.

That’s why we are here to ensure you get the best option and give some sound advice. 

 If you’re looking for a good independent agent that is familiar with the products and local area, please consider reviewing Advantage Insurance Solutions here in Denver, CO. We can help you find coverage that suits your specific needs, improve protection, reduce cost, and recommend ways that you can adjust and correct your coverage to take advantage of discounts that insurers give for packaged policies.

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