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Gap Insurance and How It Works

Imagine this: you’ve just bought your dream vehicle, financed it with a hefty vehicle loan, and are cruising down the road. Suddenly, disaster strikes.

Your car is totaled in an accident. You file an insurance claim, but the payout only covers the vehicle’s depreciated value, leaving you with a significant debt on a non-existent vehicle.

This is where gap insurance comes in.

What is Gap Insurance?

Gap insurance, or Guaranteed Asset Protection insurance, is an optional add-on to your auto insurance policy that fills the “gap” between your car’s depreciated value and the remaining loan or lease balance in case of a total loss.

While standard insurance covers the market value of your car, it might not be enough to pay off the entire loan, especially for newer vehicles with high depreciation rates.

A man in front of an auto accident

How Does Gap Insurance Work?

Imagine you owe $25,000 on your car loan, and its current market value is $20,000. If your car is totaled, your standard car insurance would only pay out the $20,000 actual cash value. This leaves you with a remaining loan balance of $5,000, which becomes your responsibility.

This is how gap insurance works. Gap insurance steps in to fill this gap. It pays the difference between the $20,000 insurance payout and the remaining $5,000 loan balance, leaving you debt-free and able to focus on replacing your car.

What Does Gap Insurance Cover?

Gap insurance covers two main types of losses associated with your car:

Total Loss

This is when your car is so badly damaged that it cannot be repaired and is considered beyond salvage. This could happen through an accident, fire, flood, or other covered events.

In this case, your standard car insurance will reimburse you for the car’s depreciated value. However, if the depreciated value falls short of your remaining loan or lease balance, gap insurance pays for the difference, preventing you from having to pay any remaining debt on a non-existent car.

Theft and Non-Recoverable Vehicle

This applies if your car is stolen and never recovered by law enforcement. Similar to a total loss scenario, your standard insurance will only pay out the depreciated value.

If this falls short of your remaining loan or lease balance, gap insurance will again step in and cover the difference, protecting you from financial burden.

Gap Coverage Limitations

With the coverage mention above, it is important to note that gap insurance does not cover the following:

Partial vehicle damage

If your car is repairable after an accident, your standard collision or comprehensive insurance will cover the repair costs, and gap insurance won’t be involved.


Gap insurance will not cover your deductible if your car is declared a total loss or stolen. You will still be responsible for paying your deductible amount before the insurance payout and potential gap claim kick in.

Other car-related expenses

Gap insurance is strictly focused on bridging the gap between the insurance payout and your outstanding loan or lease balance.

It will not cover any other expenses you might incur after a loss, such as rental car costs or replacement vehicle purchase.

Man sitting in front of a totaled car

How Much Does Gap Insurance Cost?

The cost of gap insurance depends on several factors, making it difficult to give a one-size-fits-all answer. Here are some general ranges and factors that influencing the gap insurance cost:

Cost Range

  • $20 – $60 per year: This is the typical range when you add gap insurance to your existing car insurance policy.
  • $200 – $700: This is a one-time flat fee if you purchase gap insurance through your car dealer or lender.

Factors Influencing Cost

Type of gap insurance: Return to Invoice (RTI) coverage tends to be more expensive than Guaranteed Asset Protection (GAP) coverage.

Car’s value and age: Newer and more expensive cars typically result in higher gap insurance costs.

Loan or lease agreement terms: Longer loan terms and larger loan amounts can increase the cost.

Your driving record: A clean driving record may lead to lower costs.

Your location: Some states have regulations that impact gap insurance pricing.

The cost of gap insurance is usually minimal compared to the potential financial burden it can help avoid. Carefully weigh the cost against your individual risk of a gap situation and choose the option that best suits your needs.

gap insurance checklist

Is Gap Insurance Worth It?

Whether or not gap insurance is worth it for you depends on several factors and ultimately comes down to individual circumstances. If you’re deciding whether you need gap insurance or not, here’s a breakdown to help you decide:

Large loan or lease balance

This is the most crucial factor. If you owe more on your car than its current market value (especially in the early years of your loan), a total loss or theft could leave you with significant debt. Gap insurance would bridge this gap, eliminating that financial burden.

New car

The average car depreciates rapidly, especially in the first few years. This increases the chance of a significant gap between the loan balance and the car’s value.

Long loan term

Longer loans lead to a higher possibility of your car’s value dipping below the loan balance before it’s paid off.

Leased vehicle

Leases typically require full coverage, including gap insurance, because the lessee doesn’t own the car and is responsible for the remaining value in case of a total loss.

High-risk driver or area

If you live in a high-crime area or have a history of accidents, the risk of a total loss increases, making gap insurance a more valuable safety net.

Ultimately, the decision of whether or not you need gap insurance is a personal one. Weigh the factors above and consider your individual risk tolerance and financial situation.

happy car owner with gap insurance

Where to Purchase Gap Insurance

With gap insurance, you can drive with peace of mind knowing that, in the event of a total loss, you’ll be covered. No more sleepless nights worrying about mountains of debt. No more feeling trapped by a vehicle you no longer have.

With CTI, getting a gap insurance quote is quick, easy, and completely painless. Contact our TRS-certified agents today, and you’ll have a clear picture of how our Premium Control Plan can protect yourself from the gap and debt.