Updated: April 15, 2025
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Gap insurance is designed to cover the “gap” between your loan and your car’s actual cash value in the event of a theft or total loss.
Gap insurance typically costs around $40 to $60 if purchased as an add-on to a car insurance policy. However, it may cost hundreds of dollars more if bought from a car dealership.
Even if it’s not part of your loan agreement, buying gap insurance can protect you if you have a long-term loan or have a sizable loan relative to your car’s actual cash value.
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.
Most lenders insist on collision and comprehensive insurance until your car is fully paid off. Some may also mandate gap insurance, adding an extra layer of protection to cover the difference between your car's value and the loan balance in case of a total loss.
A down payment under 20% keeps your initial loan balance high compared with the car's value, risking negative equity if the car's depreciation outpaces your loan payments.
Choosing a finance term over 60 months slows down the loan repayment, potentially leading to a scenario where you owe more than the car is worth.
Driving a car with a high depreciation rate means its value might decrease faster than you're repaying the loan. Gap insurance covers the gap between the loan balance and the depreciated value.
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.
Gap insurance is specifically intended for drivers with a car loan, covering the “gap” between the car’s actual cash value and the loan balance if the car is stolen or totaled.
While your collision and comprehensive insurance might cover the car's current value, they won't cover the remaining loan balance — this is what gap insurance was designed to cover.
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.
Actual cash value (ACV) refers to your car's market value, accounting for depreciation up to the point of damage or loss. It’s the basis for insurance payouts on collision or comprehensive claims. If you want to know what the actual cash value of your car is, Kelly Blue Book offers an online ACV calculator.
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.
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.
MoneyGeek's car insurance calculator will give you a customized estimate of your auto insurance cost. It's free to use, requires no personal information and we won't send you any spam.
Rates updated:
Apr 24, 2025
| Insurance Carrier | MoneyGeek Score | Average Monthly Payment | |
|---|---|---|---|
| 1 |  Capital Insurance Group | 94 /of 100 | $87 |
| 2 |  GEICO | 82 /of 100 | $109 |
| 3 | 83 /of 100 | $118 | |
| 4 | 83 /of 100 | $129 | |
| 5 | 79 /of 100 | $133 | |
| 6 | 77 /of 100 | $151 |
Although MoneyGeek partners with some of the companies we recommend, our content is written and reviewed by an independent team of writers, editors and licensed agents. Learn more about our editorial policies and expert editorial team.
You can add gap insurance to your car insurance policy after buying a used car — just check the cost with your insurer. But if your loan agreement demands gap insurance, make sure you have full coverage with gap insurance from the start.
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.
| Allstate | Allstate GAP waives the difference between your primary auto insurance settlement and the outstanding balance owed on your vehicle on the date of loss. Allstate GAP may have to be purchased through your lender. |
| Nationwide | If your car is a total loss after an accident, this coverage may pay the difference between the actual cash value and what you owe on the lease or loan. |
| Progressive | When your loan amount is more than your vehicle is worth, gap insurance coverage pays the difference. |
| Travelers | Gap insurance, also known as loan/lease insurance, can help protect you if your vehicle is financed or leased. If your vehicle is totaled (deemed a total loss), this coverage may pay the difference between the actual cash value of the vehicle and the unpaid balance of the auto loan or lease. |
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.
In this page, we explained how gap insurance works and when it’s worth considering for a used car. 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.
On the other hand, 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:
Gap insurance is worth it if your loan is larger than your car's cash value. It could protect you in case your car is stolen or totaled. However, if your lender requires the coverage, you need to get it.
Just like with any standard auto insurance, if you paid a lump sum, you can get a refund on the unused period.
Some car insurance companies offer gap insurance refunds if you finish paying off your loan ahead of schedule. But if you pay off your loan on time or your car is totaled or stolen, you likely won’t be eligible for a refund.
Gap insurance is an optional car insurance coverage. To get it, you need to have collision and comprehensive coverage on your policy first.
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About Mark Fitzpatrick
Mark Fitzpatrick, a Licensed Property and Casualty Insurance Producer, is MoneyGeek's resident Personal Finance Expert. With over five years of experience analyzing the insurance market, he conducts original research and creates tailored content for all types of buyers. His insights have been featured in publications like CNBC, NBC News and Mashable.
Fitzpatrick holds a master’s degree in economics and international relations from Johns Hopkins University and a bachelor’s degree from Boston College. He's also a five-time Jeopardy champion!
Passionate about economics and insurance, he aims to promote transparency in financial topics and empower others to make confident money decisions.
