Gap Insurance for Cars: Auto Loan Coverage

Q: How Does Gap Insurance Work?

Gap insurance helps pay the difference between your car’s actual cash value (ACV) and the amount you owe on your loan. If your car is stolen or totaled, gap insurance can provide peace of mind through financial protection.

Q: Is It Worth It To Get Gap Insurance for a Car?

Gap insurance is particularly useful for newer vehicles, which tend to depreciate faster. It is recommended if you put less than a 20% down payment on your car, plan to finance for 60 months or longer, or have already rolled over negative equity from another car loan.

Q: What Does Gap Insurance Actually Cover?

Gap insurance helps pay the difference between the actual cash value of your car and the amount you owe on your loan if your car is stolen or considered a total loss after a covered accident. It does not cover your annual deductible, engine failure, down payment on a new car, rental cars, aftermarket equipment costs, medical costs, funeral expenses, balances from prior loans or leases, vehicles that were originally leased or financed as a used car, motor homes or travel trailers.

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Key Takeaways

Gap insurance, also known as loan/lease gap coverage, protects your financial investment in a new car by paying the difference between how much your car is worth and how much is remaining on your loan after an accident or theft.
Gap insurance is only available if you’re the original loan or leaseholder on a new vehicle. Your car must be new and not previously owned or titled to be eligible for gap auto insurance coverage.
To get gap insurance from The Hartford, you’ll need to have collision and comprehensive coverage on your policy. These coverages are usually required by your lender if you have a car loan.

driver protected by car gap insurance from The Hartford

How Does Gap Insurance Work?

When you buy a car, you may not realize how much value it loses as soon as you drive it home. This is known as depreciation. Generally, new cars depreciate about 30% in their first year.²

Car insurance coverages, like comprehensive insurance and collision insurance, help pay to replace your car after a covered loss. However, they only pay up to the limits of the policy and your car’s Actual Cash Value (ACV), which is how much your car is actually worth. After even just one year, the value of your vehicle will decrease. That means the amount an insurance company pays to replace it could be significantly less than your loan or lease balance on your vehicle. Your gap insurance works by helping to pay the difference between the two if your car is totaled.

Example:

You total your leased car that still has $10,000 left on the loan, but your car is now worth only $4,000. If the accident is covered under your policy, then your gap insurance can help cover the difference, up to your coverage limits.

Is It Worth It To Get Gap Insurance for a Car?

Before you buy auto gap protection, there are a few things to consider. First, you should find out how much you still owe on your car loan. You can then compare it to how much your vehicle is worth.

The Insurance Information Institute also recommends gap insurance if you:³

Put less than a 20% down payment on your car.
Plan to finance for 60 months or longer.
Bought a car that depreciates faster than others. Gap insurance for cars is particularly useful for newer vehicles, which tend to depreciate faster.
Have already rolled over negative equity from another car loan.
Lease your car, which usually requires auto gap coverage.

How To Estimate the Value of Your Car

To estimate your car's worth, you'll need to look up its value in the Kelley Blue Book or National Automobile Dealers Association. You can then compare it against the current balance on your auto loan or lease. Be sure to account for the deductible costs you'll pay in the event of a crash or theft.

Remember:

Standard car insurance coverages help pay for repairs or replacements based on the actual cash value of your car, which is the amount your car is worth in the current market. If there is a large gap, your car insurance coverages won’t cover the difference.

What Does Gap Insurance Actually Cover?

If your car is stolen or considered a total loss after a covered accident, your gap insurance helps pay the difference between the actual cash value of your car and the amount you owe on your loan.

Gap insurance doesn't help pay for:

Your annual deductible
Engine failure
A down payment on a new car
Rental cars while your vehicle is being repaired
Aftermarket equipment costs
Medical costs
Funeral expenses
Balances from prior loans or leases that are included in the new agreement
Vehicles that were originally leased or financed as a used car and were previously titled or owned before you
Motor homes
Travel trailers

man happy being protected by gap car insurance

Do You Need Gap Insurance if You Have Full Coverage?

Many drivers wonder if they need gap insurance for the cars they’re leasing or financing when they already have full coverage. Even if you have full coverage car insurance, you may want to include gap insurance coverage, especially if you have a car lease or loan.

Your car dealership will usually offer gap insurance for new or leased vehicles. You also have the option to buy gap insurance from your auto insurance company within 30 days of buying your new car.

In the event of an accident, extended warranties will not cover the cost to pay off your loan if it's more than your vehicle is worth. So, if you owe more than the value of your car, gap insurance can help you avoid out-of-pocket costs if your vehicle is totaled.

Tip:

Gap insurance isn't required by any state car insurance laws, like some other coverages. However, it’s still a good coverage to have as it can offer major financial protection.

Gap Insurance From The Hartford

At The Hartford, we offer customizable coverage options to meet your unique needs. It’s why customers have trusted us for over 200 years. To start protecting yourself with gap insurance, get a car insurance quote or call The Hartford at 888-546-9099 today.

Frequently Asked Questions About Gap Insurance

How Much Money Do You Get Back From Gap Insurance?

The amount of money gap insurance pays depends on multiple factors, such as how much your car is worth and how much gap insurance coverage you have on your policy. For example, say you still have $20,000 left to pay on your car loan, but your car is now worth only $14,000. If you total your car or it’s stolen, then your gap insurance can help cover the difference, up to your policy limits, saving you $6,000 in out-of-pocket costs.

How Does Gap Insurance Work for a Leased Car?

If your newly leased car is stolen or considered a total loss after a covered accident, gap insurance helps pay the difference between the actual cash value of your car and the amount you owe on your lease. Usually, car dealerships will offer gap insurance for new or leased vehicles. Or, you’ll have the option to buy gap insurance from your insurance company within 30 days of starting your new lease.

Is Gap Insurance Necessary for a Used Car?

Gap insurance helps when there is a large difference between how much you owe on your car loan and how much your car is worth in the current market. Typically, this applies to newer vehicles, since they’d have the largest gap. For cars that are used, this is less likely, though not impossible.

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How Much Is Car Insurance?

² Kelley Blue Book, “Car Depreciation Calculator”

³ Insurance Information Institute (III), “What Is Gap Insurance?”

** Average savings amounts based on information reported by customers who switched to The Hartford from other carriers between 9/1/22 and 8/31/23. Your savings may vary. Average auto insurance savings is $577 and average home insurance savings is $236. Rate differences for AARP members and non-members vary by state and AARP membership tenure. Auto/Home discount is available only to policyholders who have both their auto and home (or condo or renters) insurance through the AARP Auto & Home Insurance program from The Hartford. The Hartford does not write new business in all areas, including the states of CA and FL.

^§ Availability of RecoverCare benefit and benefit levels vary by state. The Hartford RecoverCare Advantage^® is a registered mark of The Hartford.

^§§ Terms and conditions apply.

^‡ Terms and conditions apply. Accident Forgiveness and the Disappearing Deductible are not available to CA policyholders.

^‡‡ Terms and conditions apply. Availability varies by state.

^‡‡‡ Based on one car and driver; individual rate/premium/savings will vary based on actual coverage selections and characteristics of vehicle(s)/driver(s).

Additional disclosures below.

What Is Gap Insurance?