Do I Need Gap Insurance on a Used Car?

Gap insurance covers the difference between your car's actual cash value and your loan balance if the car is totaled or stolen. You can note the general formula as:

                           Gap Insurance = Loan Balance - ACV

For example, if you buy a car for $20,000 and it’s valued at $15,000 when lost, with a $1,000 deductible, gap insurance will pay for the $5,000, while your collision or comprehensive coverage will cover the $15,000. Your primary insurance would cover the ACV, leaving you with just the deductible to pay. Without gap insurance, you would have to pay the full amount of your loan even if you no longer have your car.

Even if it's not required, gap insurance could protect you against large losses. The longer and larger your loan, the greater the risk if your car is lost without gap insurance to cover the gap. Consider gap insurance if you made a small down payment, have a long finance term or your car depreciates fast.

Buying gap insurance doesn't make sense for a car you own outright, because there's no loan–ACV gap to cover. Similarly, if your car loan is less than the car's ACV, gap coverage isn't necessary.

The cost of car insurance on used cars varies whether you acquire it from the dealership or as an add-on from your insurance providers. Nevertheless, used cars are typically one of the cheapest cars to insure. As an add-on to your auto insurance policy, gap insurance may cost you around $40 to $60 annually. But opting to get it from the dealership may cost you hundreds of dollars more. 

If your lender doesn't require gap insurance and your loan is less than your car's ACV, adding gap insurance might lead to unnecessarily high insurance costs. Once you've paid off your used car loan or sold the car, you can cancel your gap insurance to receive a refund and reduce car insurance costs.

Gap insurance isn’t necessary for every car buyer. In some cases, adding it to your policy may just cost you more without offering meaningful benefits.

Car insurance companies consider various factors when calculating premiums. For accurate estimates, it's best to compare quotes from multiple providers. MoneyGeek's calculator below can give you personalized quotes from different insurers to help you find the best policy and company for your needs.

Many car insurance providers offer gap insurance as an optional add-on to protect your investment in the event your vehicle is totaled or stolen. These insurers, such as Allstate, Nationwide, Progressive and Travelers, each present distinct gap insurance policies, varying in coverage details, eligibility and cost. The table below lists the top companies offering gap insurance on used cars.

Choosing gap insurance is a smart financial decision, but it's important to secure it from established providers known for their reliability and customer service. Make sure to thoroughly compare policies and their benefits to ensure the protection you choose aligns with your needs and budget.

If you have a long-term loan, made a small down payment or own a car that depreciates quickly, gap insurance can save you thousands by covering the difference between your loan and your car’s value if it’s totaled.

If your loan balance is less than your car’s value or you own the car outright, gap insurance isn’t necessary. Carefully review your loan terms and vehicle’s value to decide if this coverage is a smart choice for your situation.

Below are frequently asked questions about gap insurance on used cars:

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MoneyGeek uses data we examine from hundreds of car insurance companies to analyze gap insurance options for used car owners.

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• National Association of Insurance Commissioners (NAIC): Provides consumer complaint data and regulatory oversight information
• Quadrant Information Services: Industry leader offering car insurance pricing analytics based on accurate comparative data

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Methodology Disclaimer: MoneyGeek gap insurance reviews offer valuable insight into coverage features and publicly available data. However, these reviews aren't binding recommendations. Each driver's needs and gap insurance requirements are unique. We recommend securing quotes from multiple providers to find the best coverage for your situation.