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Will gap insurance cover my totaled car?

Will Gap Insurance Cover My Totaled Car? A Comprehensive Guide

Gap insurance, short for Guaranteed Asset Protection insurance, is a specialized type of auto insurance that can be invaluable if your car is totaled. This guide will explore what gap insurance covers, how it works, and under what circumstances it can protect you financially.

Understanding Gap Insurance

Gap insurance is designed to cover the difference between the amount you owe on your car loan or lease and the car’s actual cash value (ACV) at the time it is totaled. This is particularly important because cars depreciate quickly, and in the event of a total loss, the payout from your primary insurance (which covers the ACV) may not be enough to pay off your remaining loan or lease balance.

How Gap Insurance Works

When you purchase a car, its value starts to depreciate the moment you drive it off the lot. If you finance or lease the vehicle, you might find yourself in a situation where you owe more on the loan or lease than the car is worth. This “gap” can leave you financially vulnerable if the car is totaled in an accident, stolen, or otherwise rendered unusable.

Here’s a step-by-step overview of how gap insurance works when your car is totaled:

  1. Accident Occurs: Your car is involved in an accident and is declared a total loss by your insurance company.

  2. Primary Insurance Payout: Your comprehensive or collision coverage (part of your standard auto insurance policy) pays out the actual cash value (ACV) of the car, which is its market value at the time of the accident.

  3. Loan/Lease Balance: If the ACV payout is less than what you owe on your car loan or lease, there is a remaining balance.

  4. Gap Insurance Coverage: Gap insurance covers the difference between the ACV payout and the remaining balance on your loan or lease, ensuring you are not left with out-of-pocket expenses for a car you no longer have.

Example Scenario

Let’s illustrate this with an example:

  • Original Loan Amount: $25,000
  • Time of Accident: 1 year after purchase
  • Remaining Loan Balance: $20,000
  • ACV at Time of Total Loss: $15,000

In this scenario, your primary insurance would pay $15,000 (the ACV), but you still owe $20,000 on your loan. Without gap insurance, you would need to pay the remaining $5,000 out of pocket. With gap insurance, the $5,000 difference would be covered.

Situations Where Gap Insurance is Beneficial
  1. New Car Purchases: New cars depreciate rapidly, often losing up to 20% of their value in the first year. Gap insurance can protect against this depreciation.

  2. High Loan-to-Value Ratios: If you financed a significant portion of your car purchase, you are more likely to owe more than the car’s value at some point.

  3. Leased Vehicles: Leasing agreements often come with high residual values, making gap insurance a common requirement to cover the gap.

  4. Negative Equity Rollovers: If you rolled over negative equity from a previous car loan into your current loan, gap insurance can help manage the higher balance.

What Gap Insurance Does Not Cover

While gap insurance is valuable, it does not cover everything. Here are some exclusions:

  • Deductibles: Some gap insurance policies do not cover the deductible from your primary insurance policy, although certain policies might.
  • Mechanical Repairs: Gap insurance does not cover repairs or maintenance issues.
  • Down Payments: It does not reimburse your initial down payment on the vehicle.
  • Missed Payments: If you have missed loan or lease payments, gap insurance will not cover these arrears.

How to Obtain Gap Insurance
  1. Dealerships: When you purchase or lease a car, dealerships often offer gap insurance as an add-on.

  2. Auto Insurance Companies: Many insurance providers offer gap insurance as part of their suite of auto insurance products.

  3. Financial Institutions: Some lenders or lease companies include gap insurance in their financing agreements.

Cost of Gap Insurance

The cost of gap insurance varies based on factors such as the car’s value, the length of the loan or lease, and where you purchase the policy. On average, gap insurance might cost between $20 to $40 per year if added to an existing auto insurance policy, or a one-time fee of $500 to $700 if purchased through a dealership.


Gap insurance can be a lifesaver if your car is totaled and you owe more on your loan or lease than the car’s current value. By understanding how gap insurance works and when it is beneficial, you can make informed decisions to protect your financial interests. For personalized advice and to explore your gap insurance options, our brokerage firm is here to provide expert guidance and support tailored to your needs. 

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