Understanding Gap Insurance: Protect Your Financial Future
Learn how Gap Insurance can protect you from negative equity and calculate your potential coverage needs.
What is Gap Insurance?
Gap insurance (Guaranteed Asset Protection) is a specialized auto insurance that covers the difference between the amount you owe on your vehicle and its actual cash value (ACV) if it's totaled or stolen.
Key Points About Gap Insurance:
- Protects against negative equity in your vehicle
- Essential for new car purchases with minimal down payment
- Covers the "gap" between insurance payout and loan balance
- Typically needed when financing for 60 months or longer
Gap Insurance Calculator
Results
Benefits of Gap Insurance
Financial Protection
Covers the difference between your car's actual cash value and your loan balance in case of total loss.
Peace of Mind
Drive confidently knowing you're protected against negative equity situations.
Affordable Coverage
Generally costs a fraction of your regular auto insurance premium.
Loan/Lease Protection
Essential coverage for leased vehicles or loans with minimal down payment.
Coverage Comparison
| Coverage Type | Regular Insurance | Gap Insurance |
|---|---|---|
| Vehicle Market Value | ✓ | ✓ |
| Negative Equity Coverage | ✗ | ✓ |
| New Car Replacement | ✗ | Varies |
| Deductible Coverage | ✗ | Some Policies |
Frequently Asked Questions
Do I need gap insurance?
You might need gap insurance if:
- You made a small down payment (less than 20%)
- Your loan term is 60 months or longer
- You lease your vehicle
- You drive many miles annually
- You purchased a vehicle that depreciates quickly
How long do I need gap insurance?
You typically need gap insurance until the amount you owe on your car becomes less than its actual cash value. This usually occurs when you've paid down your loan to about 80% of the car's original value.
How much does gap insurance cost?
Gap insurance typically costs between $20 to $40 per month when added to your existing car insurance policy. The exact cost depends on:
- Your vehicle's value
- Your location
- Your insurance provider
- The amount of your loan