How Much Does Gap Insurance Cost?
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Through your auto insurance shopping experience, you may have heard the term Gap insurance, but may not be 100% sure what it is or does; all you know is it adds dollars to the cost of your vehicle. Did you know Gap insurance, Guaranteed Asset Protection, is one of the most important parts of a new car purchase?
In my eight years of experience, I’ve helped shoppers understand the importance of these details so that when they make their next car purchase, they can feel comfortable driving off the lot knowing they are protected should the unexpected occur.
Key Takeaways
Gap insurance is intended to protect you financially should you total your vehicle before paying off the lease.
Gap insurance is available from car insurance companies as a rider to your car insurance policy. You can also obtain it from the dealership when you purchase your automobile.
Gap insurance cost will depend on where you live, the vehicle you drive, and the state you live in.
Without Gap insurance you would still have to pay the remainder of your car lease if you were to total your vehicle in an accident or theft and the insurance company gives you less than the lease amount.
Average Cost Of Gap Insurance
It is important to remember Gap insurance does not pay to repair your vehicle. It is not auto insurance that pays the other driver in the event of an auto incident. This form of coverage is for the lender to recoup their losses and to help you avoid a potential lawsuit by providing the funds to pay off the balance after the claims adjuster makes their final assessment.
The cost of Gap insurance will vary depending on whom you purchase it from. You can purchase it from the manufacturer, or the dealership, and the fee is usually tacked on the cost of your automobile. You can also purchase a policy on your own through a car insurance company.
| Provider | Cost | Term |
| Manufacturer | $200 to $300 | One-time fee |
| Dealership | $500 to $700 | One-time fee |
| Car Insurance Company | $20 to $40 | Per year |
Gap FACTS: Gap insurance only covers when you have a total loss of a vehicle, and it only covers the vehicle. It does not cover injuries or the other party in the incident or property in the event of theft.
What Factors Affect The Cost Of Gap Insurance
Most Gap insurance policies are purchased on new vehicles but can be bought when you lease a vehicle and owe money to a lender. The factors that will affect the cost of a Gap insurance policy will lend to:
- Driver age and driving record
- The state you live in
- The current value of the vehicle
Another factor that will affect the cost is where you purchase it. The cost of a policy at the dealership can be much higher than through a stand-alone insurance company. Car dealers cannot force you to purchase it from them, but some lenders may, as a condition of lending you the money for your vehicle.
When through a car dealership, Gap coverage can be included as part of the vehicle package. You can accept this, or you can purchase GAP insurance on your own through an insurance company.
Gap FACTS: For 2023, 1,020,729 vehicle thefts were recorded. Thieves are becoming more sophisticated learning to bypass advanced technology systems.
Is Gap Insurance Worth It?
Let’s say you purchase a car for $32,000. Six months later you are in an automobile accident. After your insurance adjuster values your vehicle they determine that it is totaled and worth $25,000. But you have only paid $3000 for your car.
Your insurance company’s adjuster will pay the car company the $25,000, leaving a balance of $4,000 that you still owe the car company for a car you no longer drive.
If you had Gap insurance, this $4000 gap would be covered, and you would not owe the balance that was due to the depreciation of your automobile. GAP insurance is worth it.
You should consider Gap insurance if:
- You are leasing your vehicle
- You plan to put a lot of miles on your vehicle which can speed up depreciation
- Purchase a vehicle that is known to depreciate quicker than others
- Purchase a vehicle with a low-down payment
Gap THRESHOLD: Many states have a determined total loss threshold. Other insurance providers set the limit. Alabama, Florida, Louisiana, and New York are among the states that determine their own TL threshold.
When you consider the most expensive cars to insure, they would most likely be the most expensive to replace. According to Forbes Advisor among the most expensive cars for 2021 were the Honda Pilot SE, Nissan Sentra S, and Tesla Model S. New or used, carrying Gap can be well worth the expense.
DEPRECIATION: According to Kelley Blue Book, a car can lose up to 20% of its original value the moment you drive off the lot and up to 60% within five years.
Which Companies Offer Gap Insurance?
None of the 50 states mandate Gap coverage, nor do the insurance providers. However, the lender or dealership you are purchasing the vehicle from may require it. Below we have selected five auto insurance companies that offer Gap insurance or an equivalent. Most are identical to what Gap offers; costs will vary by company.
Allstate
Allstate Guaranteed Asset Protection (GAP) coverage must be added at the time of vehicle financing. It is available on new and used vehicles with up to 96 months’ financing. It will cover your auto insurance deductible of up to $1000 and will pay up to $50,000 of your balance. According to our research, an average six-month policy costs about $20.
Liberty Mutual
With Liberty’s Guaranteed Asset Protection plan, you must be the first and only owner of the vehicle for it to apply. Liberty Mutual has additional benefit plans in place for the first-year car owner, or before your first 15K, whichever comes first. This added protection is called New Car Replacement.
It acts like Gap , but instead of paying off your loan, it replaces your depreciated vehicle with a new one. They even have an added selection called Better Car Replacement that would give you a one year better model. A standard Gap add-on is about $50 per year.
Nationwide
Nationwide offers Guaranteed Asset Protection (GAP) insurance as an optional add-on coverage. It is added to the vehicle’s Collision insurance portion of the policy. It helps those who owe more on their vehicle than what it is worth; those whose loan required Gap insurance; and drivers who want protection from the unexpected.
As a reminder, it protects the Actual Cash Value at the time of the accident and not what you purchased the car for. Nationwide quotes at about $40 per year in select states.
State Farm
While not directly a Gap policy, State Farm offers Payoff Protection with every vehicle loan that originates with State Farm Bank, so there is no cost to add it on. Meaning you must accept their financing for your vehicle. However, if your car is totaled or stolen and the insurance settlement does not cover the amount you owe on your loan, State Farm will pay off the remaining balance. This does not cover past-due amounts the owner may have on the car.
Progressive
Like State Farm, Progressive does not have a dedicated Gap policy. However, they do have payoff coverage. The first caveat to having this benefit is you must have Comprehensive and Collision Coverage. This is pretty standard among Gap -like policies. Progressive has a Loan/Lease Payoff option.
If your vehicle is lost or stolen, Progressive will pay the difference between what the insurance coverage pays and what you owe should there be a balance due. The second catch is that they will only pay up to 25% of the vehicle’s value. If you total your car early in the lease, you may still have to pay out of pocket.
SHOP AROUND: Not every company is equal. Gap insurance is not mandatory coverage and insurance companies can cover vehicles at different levels and charge different rates.
In 2023, the IRC conducted a study and found that 14% of motorists did not have auto insurance. Even when you are in the middle of purchasing a vehicle, auto insurance is mandatory. Most dealerships will not let you leave the lot without proof of insurance.
You can often use your current insurance from your trade-in for a certain period of time, but that is limited, you will need to add your new vehicle within a certain time period.
Coverage for your new vehicle is important. Gap insurance is part of that coverage. You never know when the unexpected will occur.
FAQs
How is Gap insurance calculated?
Gap insurance is determined by the actual cost value (ACV) of the car you are purchasing, your age, the state you live in, and whether you have had any insurance claims on your policy.
Do you pay GAP monthly?
Generally, your Gap policy will be figured into your car insurance policy or car loan amount. If it is in your car loan, then you will pay it annually, as you pay off your car, If you purchase your policy through a car insurance company you can elect to pay monthly or annually.
Does GAP raise your insurance payment?
If you choose to purchase your Gap insurance through a finance company or auto dealership, then your insurance can be more expensive. As our study has shown the cost of Gap insurance is less expensive through an insurance company.
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