How Much is Gap Insurance? Everything You Need to Know
Gap insurance is a valuable financial protection that covers the difference between what you owe on your car and its actual cash value (ACV) in case of a total loss or theft. If you’re financing or leasing a vehicle, understanding gap insurance can help prevent financial setbacks.
Key Takeaways
- How much is gap insurance? On average, gap insurance costs around $20 per year when added to a full-coverage auto policy.
- How much is the average gap insurance? The price varies based on the provider, but it is generally affordable.
- How do I know if I have gap insurance? Check your current auto insurance policy or contact your lender or dealer.
- Gap insurance cost: It’s typically cheaper to buy from an insurer rather than a dealership.
- Does Allstate offer gap insurance? Yes, Allstate provides gap insurance that waives covered losses up to $50,000.
- Gap insurance California: Regulations differ by state, but gap insurance is widely available in California.
- Is dealership gap insurance required by the lender? Some lenders require it, but you can usually buy it from an insurer at a lower cost.
- Lease gap coverage in insurance: Leasing companies often mandate gap coverage to protect against financial losses.
What is Gap Insurance?
Gap insurance, short for Guaranteed Asset Protection, helps cover the financial gap between your car’s actual cash value (ACV) and the remaining balance on your auto loan if your car is totaled or stolen.
Example: If you owe $25,000 on your car loan but the vehicle’s ACV is $20,000, gap insurance covers the $5,000 difference.
How Much Does Gap Insurance Cost?
- From an insurance company: $20 – $40 per year when added to a full-coverage policy.
- From a dealership: A one-time fee of $500 – $700 (sometimes rolled into the loan, leading to interest charges).
- From a lender: Often costs $200 – $400 for the life of the loan.
Pro Tip: Buying gap insurance from your car insurance provider is usually the most cost-effective option.
How Do You Know If You Have Gap Insurance?
You may already have gap coverage if:
- You purchased it through your car dealership or lender.
- Your auto insurance policy includes it as an add-on.
- Your lease agreement requires it.
- You were offered Safeguard Gap Insurance or another third-party gap insurance plan.
To confirm, check your insurance documents or contact your provider.
What Does Gap Insurance Cover?
| Covered | Not Covered |
|---|---|
| Loan or lease balance in case of total loss | Vehicle repairs |
| Stolen vehicles (if you have comprehensive coverage) | New car replacement |
| Vehicles that depreciate faster than loan payments | Personal injuries |
Is Gap Insurance Required?
Gap insurance is not legally required, but some lenders and leasing companies mandate it, especially if:
- Your loan term is 5+ years.
- Your down payment was less than 20%.
- Your vehicle depreciates faster than your loan balance decreases.
- You rolled negative equity from a previous car loan into your new loan.
Allstate Gap Insurance Coverage
Allstate offers gap insurance that:
- Covers up to $50,000 in covered losses.
- Includes deductible reimbursement up to $1,000.
- Applies to both new and used vehicles.
However, not all policies include gap insurance by default—you must add it to your policy.
Gap Insurance in California
In California, dealerships must disclose gap insurance costs upfront and allow cancellation within 30 days for a full refund. If purchasing from an insurer, state regulations ensure fair pricing and claims handling.
Alternatives to Gap Insurance
- New Car Replacement: If your car is totaled, this coverage pays for a brand-new vehicle of the same make and model.
- Better Car Replacement: Some insurers offer to replace your totaled car with a newer or lower-mileage vehicle.
- Loan/Lease Payoff Coverage: Similar to gap insurance but usually caps coverage at 25% of your car’s ACV.
Should I Get Gap Insurance on a Used Car?
Gap insurance is not always necessary for a used car unless:
- You financed it with little or no down payment.
- The vehicle depreciates faster than you pay off your loan.
- The lender requires it as part of the financing terms.
For older used cars with small loan balances, gap insurance may not be worth it.
How to Cancel Gap Insurance
- If purchased from an insurer: Contact your provider and request removal.
- If purchased from a dealership/lender: You may be eligible for a partial refund if canceled early.
Final Thoughts: Is Gap Insurance Worth It?
Gap insurance is a low-cost financial safety net that can prevent you from owing money on a totaled or stolen vehicle. It’s especially useful if you lease a car or owe more than the car’s value. However, once your loan balance is less than your car’s ACV, you can safely cancel gap coverage.
To get the best deal on gap insurance, compare quotes from your auto insurer, dealership, and lender. Buying from your existing car insurance company is usually the cheapest option.
By understanding how gap insurance works, where to buy it, and how to save money, you can make an informed decision about protecting your vehicle investment.
Want to know more about other insurances, Read our latest articles.
