Marissa Hayes

Insurance Writer & Expert

Marissa Hayes is a technical editor and contributing writer. She holds a Bachelor’s Degree in history, and she was the editor of the literary magazine, The Bluestone Review.

Insurance Writer & Expert

Daniel Walker

Licensed Insurance Agent

Daniel Walker graduated with a BS in Administrative Management in 2005 and has run his family’s insurance agency, FCI Agency, for over 15 years (BBB A+). He is licensed as an insurance agent to write property and casualty insurance, including home, life, auto, umbrella, and dwelling fire insurance. He’s also been featured on sites like and Safeco. To ensure our content is accura...

Licensed Insurance Agent

UPDATED: Mar 23, 2024

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What is gap insurance coverage?

When you lease a vehicle, you are actually borrowing it from the dealership for a set amount of time. When you finance a vehicle, you don’t actually own it until the very last payment has been made and the title is in your hands. Even though we may tell people that it is our car, it technically does not belong to us in these scenarios.

Read more: How to Sign a Car Title Over to Someone Else

So, what happens when you get into a car accident and total the car? Your car insurance should kick in and cover the cost of the damages or give you a check for what they believe the car is worth if the cost of repairing it exceeds its value. The danger in this situation is that the amount the car insurance company gives you may not be enough to cover what you owe on the car. This could leave you in a bind where you are still paying for a vehicle that you can no longer drive.

How can you protect yourself from having this problem? You purchase gap insurance. Gap insurance is just what it sounds like. It is insurance to assist you with that gap of money between what regular insurance is willing to pay and what you owe a financing institution.

What does GAP insurance cover?

Understanding the need for gap insurance means understanding the value a vehicle depreciates. Unlike owning a home, which has the potential to grow in value over time, owning a vehicle is different. Vehicles start losing value the second you drive them off the dealership parking lot. In fact, a new vehicle can lose as much as 60% of its value in the first two years of ownership!

How does this relate to gap insurance? Well, if you are financing or leasing the vehicle you have signed a contract with a finance company for a specified amount of money. The financial institution is not going to be concerned about the value of your car at the time of an accident.

They want the contracted amount agreed to by both parties at the time of purchase, plus interest. An insurance company, on the other hand, is not going to pay out more than a car is worth. Even owning the car for a short amount of time could mean that you will be left in a situation where you are paying for transportation that you no can longer drive once it has been totaled or stolen. Gap insurance is your only protection for this situation.

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Do I have to buy GAP insurance coverage?

No. There is no state in the country that forces drivers to purchase gap insurance. Liability insurance to ensure that you can be financial responsibility if you ever become an at fault driver is usually the type of insurance that gets legally mandated. The state is not as concerned about whether or not you can make your car payments if your car gets totaled.

If you are planning to lease a car, you might be required to purchase gap insurance. This is the dealer’s way of protecting its investment by allowing you to borrow the car.

How much GAP insurance coverage should I buy?

Your gap insurance should be enough to cover the difference between what the car is worth and what you still owe in payments. This will vary from year to year so it may require either purchasing more than you need or an annual review of how much is necessary.

This information will need to be balanced against how much you can afford to add onto your car insurance policy. Gap insurance should not break the bank but if you cannot afford the monthly payments, consider purchasing a smaller amount of auto insurance coverage. There is no since taking the risk that you may need gap insurance if you cannot afford to make the monthly premiums.

Keep in mind that most gap insurance policies require that your car insurance includes collision and comprehensive coverage. Basic auto insurance policies do not automatically include comp and collision, so this could be an additional free for those signing up for gap insurance.

How do I decide whether or not to purchase GAP insurance coverage?

The bottom line is if you owe more on your car than the car is worth, you should consider purchasing gap coverage. A quick internet search or a glance through the Kelly Blue Book will help you to determine the current value of your car. Compare that to what is left on your loan and that should answer your question about whether or not you should buy the additional coverage.