What is gap insurance?

  • Gap insurance fills the gap between what your insurance company pays and for accident or theft, and what you owe on an existing car loan.
  • Car insurance pays out depending on your car’s current value. Because many cars lose value quickly, you may find yourself in a situation where you owe more on a loan than what the car is actually worth — for instance, you buy a $30,000 car and in one year it is valued at $22,000, but you still have $25,000 left on your own. Gap insurance covers that $3,000 difference.
  • Gap insurance typically adds on around 5% of your total car insurance bill.