What is Gap Insurance?

Gap Insurance

Gap insurance is an optional car insurance coverage that helps pay the difference between your car’s Actual Cash Value (ACV) and the amount you owe on the loan, if it’s stolen or totaled. It’s also known as loan/lease gap coverage.

Key Things To Know About Gap Insurance:

In most cases, you’ll need this coverage for leased or financed cars.
To make sure you’re covered, buy gap insurance right away when leasing or financing a new vehicle. After 30 days, you’ll no longer have the option to purchase gap insurance.
Gap insurance is only available if you’re the original loan or leaseholder on a new vehicle. Your car must be new and not previously owned or titled to be eligible to purchase gap insurance.
You’ll also need to get comprehensive and collision coverage when you buy gap insurance.

To learn more about gap insurance or other car coverage, you can get an auto insurance quote from us today.

How Does Gap Insurance Work?

If you buy a car, you may not realize how much value it loses as soon as you get it home. This is known as depreciation. Generally, new cars depreciate 30.5% in their first year.² Your standard comprehensive and collision insurance coverage help pay to replace your car from a covered loss. However, they only pay up to the limits of the policy and your car’s ACV.

After a year or two, the value of the car and the amount insurance will pay to replace it could be thousands less than your car loan or lease balance. Your gap insurance works by helping pay the difference between your lease or loan amount and insurance coverage.

For example, say you total your car in an accident. You still have $10,000 left on the loan, but your car is worth only $4,000. In this case, your gap insurance can help cover the difference between the two, up to your policy limits.

To purchase gap insurance, you can call our representatives at 888-413-8970 to get a quote.

Actual Cash Value

Your standard auto insurance policy helps pay for repairs and replacement based on the actual cash value (ACV) of your car. That’s the amount the car is worth on the current market, which decreases or depreciates, as it ages. So, if someone steals your car, or it’s totaled in an accident, the money the insurance company gives you may not be enough to pay off your car loan, because you owe more than your vehicle is worth. This is where gap insurance can help you.

Is Gap Insurance Worth It?

Before you buy gap insurance, you should find out how much you still owe on your car loan. You can then compare it to how much your vehicle is worth. This will help you decide if you need gap insurance or not. The Insurance Information Institute also recommends gap insurance if you:³

Put less than a 20% down payment on your car
Plan to finance for 60 months or longer
Bought a car that depreciates faster than others
Have already rolled over negative equity from another car loan
Lease your car, which usually requires gap coverage

How To Estimate the Value of Your Car

To estimate your car’s worth, you need to look up the Kelley Blue Book or National Automobile Dealers Association value on your car. You can then compare it against the current balance on your auto loan or lease. Be sure to account for the deductible you’ll pay in the event of a crash or theft.

Once you know your car’s worth, you can then work with a car insurance calculator, to get the right coverages. You can also talk to representatives about buying gap insurance or other extra coverage for your car. While gap insurance isn’t required by law, you’ll want to check state car insurance requirements to learn about other required coverages for your area.

What Does Gap Insurance Cover?

Your gap insurance helps pay the difference between the actual cash value of your car and the amount you owe on your loan, if it’s a total loss or stolen. However, it doesn’t help pay for:

Your annual deductible
Engine failure
A down payment on a new car
Rental cars while your vehicle is being repaired
Aftermarket equipment costs
Medical costs
Funeral expenses
Balances from prior loans or leases that are included in the new agreement
Vehicles that were originally leased or financed as a used car and were previously titled or owned before you
Motor homes
Travel trailers

Do You Need Gap Insurance if You Have Full Coverage?

Even if you have full comprehensive and collision coverage, you’ll still want to consider gap insurance, especially if you have a car lease or loan. The car dealership will usually offer gap insurance for lease vehicles. You also have the option to buy gap insurance from your auto insurance company, usually within 30 days of purchasing your new car. In the event of an accident, extended warranties will not cover the cost to pay off your loan if it’s more than your vehicle is worth. Gap insurance covers you, so you don’t have to pay out of pocket if your vehicle is totaled.

Gap Insurance From The Hartford

It’s not always easy finding car insurers that offer the right coverages that fit your needs. But you can rest assured that our comprehensive policies will have your back. In fact, customers have trusted us for over 200 years.

To find the gap insurance you need, get a car insurance quote from us today.

² Edmunds, “How Much Should a Car Down Payment Be?

³ Insurance Information Institute (III), “What Is Gap Insurance?”