Is gap insurance worth it?

Quick insights

Ever wonder what happens if your car is totaled or stolen before you've paid off your loan? Gap insurance can cover the “gap” between what you owe and what your car is deemed to be worth. Let's hit the road and learn more.

What is gap insurance?

Gap insurance is a type of auto insurance that covers the “gap” between the actual cash value of a vehicle and the amount the owner still owes on the loan or lease if the car is totaled or stolen. It's typically offered by car insurance companies, lenders and car dealerships.

The cost of gap insurance varies depending on several factors, including the value of your car and where you purchase the coverage. However, it typically only costs a small percentage of the premium for your collision and comprehensive insurance.  

Do you need gap insurance?

Gap insurance isn’t for everyone.  It tends to be more useful for people who still owe a large balance on their auto loan or who are leasing a vehicle. Standard car insurance is designed to cover the actual cash value of your car, while gap insurance covers the difference between the car's actual cash value and the amount you owe on your loan or lease if the car is totaled or stolen.

If you owe a lot on your car loan, especially if you put down a small down payment or have a long-term loan, gap insurance can protect you from a potential financial hit if your car is totaled or stolen. Otherwise, in the event of a total loss, your insurance payout may be significantly lower than the amount you owe on your vehicle, requiring you to continue making payments for something you no longer own.

If you're leasing a car, the leasing company may require you to purchase gap insurance. Even if it's not required, it may be a good idea since lease payments can be higher than the car's depreciation. This means that, similar to a vehicle with a large outstanding loan balance, the payout for a total loss may not cover the remaining balance of your lease, leaving you to pay the difference.

When to get gap insurance

You can typically purchase gap insurance at the time of your auto purchase or lease. When added during this time, gap insurance can be included in your loan or lease payments.

It can also be possible to add gap insurance after purchase or signing a lease. Some car insurance companies offer gap insurance as an add-on to a standard policy. You can typically add it within a certain period after purchasing or leasing the vehicle, such as within the first 30 days after purchase.

It's important to note that gap insurance is an optional coverage and is above and beyond the cost of standard car insurance, which typically includes liability, comprehensive and collision coverage.

How to get gap insurance

Many car insurance companies offer gap insurance as an add-on coverage. You can check with your current insurer or shop around. Gap insurance is a policy you pay for, which covers the difference between the actual cash value of the vehicle and the current outstanding balance on your loan or lease in the event of total loss.

Gap waivers, on the other hand, are often offered by car dealerships and lenders like Chase at the time of vehicle purchase or lease. Unlike gap insurance, a gap waiver isn't an insurance policy. Instead, it's an agreement where the lender waives your obligation to pay the gap amount in the event of total loss. It can be helpful to compare costs and coverage details with other options.

The bottom line

Gap insurance can provide useful protection for car owners who have a high balance on their auto loan or who lease their vehicle. It covers the "gap" between the car's actual cash value and the amount owed on the loan or lease if the car is totaled or stolen. You may want to consider your individual circumstances and compare costs and coverage options to determine whether gap insurance is worth it for you.