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Gap coverage is an optional auto insurance add-on that helps cover the difference between the amount your car insurance pays and the remaining balance on your car loan or lease. It can be useful in specific situations where your vehicle is totaled or stolen, and the insurance payout is less than what you owe.
What Is Gap Coverage?
Gap coverage, also known as guaranteed asset protection, is designed to prevent you from owing money on a vehicle that is no longer in your possession. If your car is declared a total loss, your standard insurance covers its current value, which may be less than your original purchase price or remaining loan balance. Gap coverage pays the difference.
When Do You Need It?
You should consider gap coverage if you:
- Buy a new or leased vehicle with a small down payment.
- Finance a vehicle for a long term, such as 60 or 72 months.
- Drive a vehicle that depreciates quickly.
- Live in an area with high theft rates.
- Have a loan balance that is higher than the vehicle’s current value.
Benefits of Gap Coverage
Gap coverage provides financial protection by covering the difference between the insurance payout and the remaining loan balance. This can prevent significant out-of-pocket expenses if your vehicle is totaled or stolen. It is especially beneficial in the first few years of a vehicle’s life when depreciation is rapid.