Gap Insurance: What It Is—and Whether You Actually Need It

Is Gap Insurance Worth It? Here’s What You Need to Know
You just bought a new car, signed the paperwork, and drove it off the lot. Everything feels great—until you realize your shiny new ride has already lost value the moment you hit the road.

Now, imagine if your car got totaled tomorrow. Your auto insurance would pay out the car’s current value, but what if that’s less than what you still owe on your loan?

That’s exactly where gap insurance comes in—and for some drivers, it can be a real financial lifesaver.

So, What Is Gap Insurance Anyway?
“Gap” stands for Guaranteed Asset Protection. It’s designed to cover the “gap” between what your vehicle is worth and how much you still owe on your loan or lease if your car is declared a total loss or gets stolen.

Let’s say:

• You owe $28,000 on your auto loan.
• Your car’s current market value is $23,000.
• Insurance covers the $23K, but you’re still on the hook for $5,000.

Gap insurance steps in to pay that remaining balance so you’re not stuck making payments on a car you no longer have.

Who Actually Needs Gap Insurance?
Gap insurance isn’t something every driver needs—but for some, it’s a really smart idea. You should definitely consider it if:

• You bought or leased a brand-new car
• You didn’t make a big down payment
• You have a long-term auto loan (like 60 months or more)
• Your car is known to depreciate quickly (hello, luxury and electric vehicles)
• You rolled over negative equity from a previous loan into your new one

If you’re upside down on your loan—that is, you owe more than the car is currently worth—gap coverage can help protect your wallet from the unexpected.

How Much Does Gap Insurance Cost?
Surprisingly, gap insurance is pretty inexpensive—especially if you add it through your existing auto policy. Most drivers pay somewhere between $20 to $40 per year when they get it through their insurance company.

You can also buy gap insurance through the dealership when you finance your car, but keep in mind:

• They’ll likely bundle it into your loan, which means you’ll pay interest on it, too.
• It’s usually more expensive than going through an insurance provider.

Bottom line? If you’re thinking about gap coverage, talk to your insurance agent first. You’ll probably save some money.

When Can You Skip It?
Gap insurance isn’t always necessary. You can probably pass if:

• You put 20% or more down when you bought your car
• You’re nearly finished paying off your loan
• You bought a used vehicle and the value isn’t far off from what you owe
• You own your car outright

Still, it’s worth running the numbers just to be sure. Vehicles depreciate fast—and even a short gap between value and loan balance can leave you vulnerable.

The Takeaway
Gap insurance is one of those coverages that flies under the radar—but it can save you thousands if your car is totaled while you’re still upside down on your loan. For newer cars, long loan terms, or small down payments, it’s definitely worth looking into.

Wondering If Gap Insurance Is Right for You? Let’s Talk.
At National Insurance Brokers, we’re here to help you figure out what coverage you actually need—and what you don’t. If you’ve recently bought or leased a car, we’ll walk you through whether gap insurance makes sense for your situation.

Reach out today for a free, no-pressure policy review. We’ll help you protect your ride—and your wallet—without overcomplicating things.