Leslie Kasperowicz holds a BA in Social Sciences from the University of Winnipeg. She spent several years as a Farmers Insurance CSR, gaining a solid understanding of insurance products including home, life, auto, and commercial and working directly with insurance customers to understand their needs. She has since used that knowledge in her more than ten years as a writer, largely in the insuranc...

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Melanie Musson is the fourth generation in her family to work in the insurance industry. She grew up with insurance talk as part of her everyday conversation and has studied to gain an in-depth knowledge of state-specific insurance laws and dynamics as well as a broad understanding of how insurance fits into every person’s life, from budgets to coverage levels. Through her years working in th...

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Reviewed by Melanie Musson
Published Insurance Expert Melanie Musson

UPDATED: Mar 23, 2022

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To Sum It Up

  • GAP insurance covers the difference between what you owe and what your car is worth if it is lost or totaled
  • It makes sense to purchase GAP coverage if you have a long-term, high-interest loan or can’t make a large down payment on a car
  • GAP insurance is relatively inexpensive, but could save you from owing thousands on a car you can no longer drive

GAP insurance isn’t a mandatory coverage on a car insurance policy but it’s highly recommended in certain situations. This coverage helps cover the difference between the actual value of a vehicle and what you might owe on a car loan.

There are times when GAP insurance makes a lot of sense — and other times when you might not need it. Read on to learn more.

How much is GAP insurance typically?

The average cost of GAP insurance might vary from one insurance company to another, but you can generally expect to pay about 6% of the cost of your comprehensive and collision coverages on your auto policy.

If you want to figure out the cost of GAP insurance per month, simply divide the dollar amount by the number of months in your policy renewal. Usually, policies renew annually or every six months. 

Just like your auto policy in general, there can be variables that affect the cost of GAP insurance. The amount you pay could depend on all of the following:

  • Where you live
  • The value of your vehicle
  • Your driving record

If you’re buying a car that requires this coverage, make sure you contact your current insurance company or one that will quote you auto insurance policy rates with a GAP insurance cost option.

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Which companies provide GAP insurance?

Most auto insurance companies will provide options for GAP insurance. You can look to the big, nationally recognized companies such as Allstate, Farmers, or Progressive. These giants insure cars in every state, and all have agents that can give you a GAP insurance price. 

Small, regional companies with long histories and solid financial ratings can also provide a cost for GAP insurance. Do some research on smaller auto insurers before obtaining a quote or purchasing a policy.

Auto insurance companies aren’t the only option for getting GAP insurance. In some cases, you can get GAP coverage from the dealership when you’re purchasing a car. How much GAP coverage costs through an auto dealer can also vary but, on average, you can expect to pay about $500 as a one-time fee under these circumstances.

You’ll want to know if the dealership has included GAP insurance costs in your offer so you can choose to accept the dealer’s coverage or obtain it from your auto insurance company. 

Can GAP insurance help you save money on car repairs?

GAP insurance won’t help you save money on car repairs. This coverage only comes into play if you’re in a car accident, and the damage to your vehicle results in a total loss.

Let’s say you own a car and have taken out a loan for 72 months at a 6% interest rate. You purchased the vehicle new for $25,000 and borrowed the entire amount. Three months after you buy the car, you total it in an accident. 

In that first year of financing, you’re paying mostly interest on the loan and not principal. Thus, you may still owe $25,000 on the car while the actual cash value is $23,000. If you don’t have GAP insurance, your liability could be $2,000. This is the difference between what you owe and what the insurer will pay you for a total loss.

Also, it’s worth noting that the average new car depreciates by about 10% after it’s driven off the lot, so you may owe more than it’s worth right off the bat.

Is GAP insurance worth it on a new car?

Your individual circumstances will determine whether the average cost of GAP insurance justifies the benefit. Your decision to pay GAP insurance costs on a new car might depend on the terms of your loan.

If we use the example above, perhaps you’ve secured no-interest financing with a repayment term of 24 months. In this instance, you will have paid off a big chunk of principal by the third month, and the actual value of the car may be more than you owe on the loan.

By contrast, you may have a much larger liability if your interest rate is a lot higher than 6%, and you’ve extended repayment terms to 84 months. You may also have purchased a vehicle that depreciates more rapidly, especially if it’s brand new. Paying for GAP insurance is certainly worth it in this case.

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Get the True Cost of GAP Insurance

You can receive auto insurance rates and GAP insurance quotes from a number of quality insurance companies. Make sure to compare options in your area and decide what coverage is right for you.