Gap insurance

Gap insurance is a specific auto insurance product that pays the difference between a vehicle’s actual cash value and the remaining loan or lease balance if the car is totaled or stolen. Lenders and leasing companies often require gap insurance for new vehicles with low down payments, high depreciation rates, or long-term loans (examples: 72-month, 84-month loans).

Gap insurance typically covers sedans, SUVs, and trucks purchased new but rarely applies to motorcycles, RVs, or classic cars. Insurers such as Allstate, State Farm, and Progressive offer gap insurance policies with premiums averaging $20–$40 per year added to comprehensive and collision coverage.

Standard auto policies reimburse only market value minus deductible; gap insurance pays any “gap” left on the financing agreement. Drivers can usually cancel gap coverage once their loan balance drops below the car’s market value.

Dealers often include gap waivers in finance contracts at purchase; these waivers differ from true insurance because they lack state regulatory oversight. Claims must be filed promptly after a total loss event; typical deadlines range from 30–90 days depending on the insurer, as compiled by YourInsurance.info (Your Insurance Info).

Claims require supporting documents like settlement statements from primary insurers and payoff letters from lenders (examples: GEICO requires an ACV statement and lender letter). Most lenders disallow gap coverage transfer if you refinance your auto loan after initial purchase.

Gap insurance does not cover overdue payments, extended warranties, maintenance plans, or negative equity from prior loans rolled into new financing agreements.