Gap insurance, also known as loan/lease gap coverage, is a type of auto insurance that covers the difference between the actual cash value (ACV) of a vehicle and the amount still owed on the car loan or lease. You claim gap insurance in the event that the vehicle is declared a total loss, “totaled” for short.

For example, if you are in an accident that renders the car a “total loss,” your insurance company will only pay you the actual cash value of the vehicle. If you’re still paying back the loan you took out to get the car, the actual cash value may be less than the amount you still owe. If you have gap insurance, the insurance covers the difference, saving you from paying out of pocket for the remaining balance.  

Most car dealerships offer gap insurance when you purchase or lease a vehicle, but you may be able to add this coverage onto your current auto policy. It's important to consider gap insurance if you have a car loan or lease and you have a high-risk of owing more on the loan than the car is worth. Examples include a new car with a high loan balance or a car loan with a high interest rate.

Is gap insurance just for cars?

Gap insurance most often covers cars, but it's possible to find policies for other items.

Gap insurance is primarily designed for car loans and leases, but it can be available for other types of loans or leases. This includes other vehicles like motorcycles, boats and recreational vehicles as well as some non-automotive items. Gap insurance, regardless of what it covers, covers the difference between the actual cash value of the item and the amount still owed on the loan or lease in the event of a total loss.  

It's important to note that gap insurance is not available for all types of loans or leases. The availability of gap insurance may vary depending on the lender or lease provider and the financed item. If you have a loan or lease for a non-automotive item and you're concerned about the potential gap between the actual value and the amount you still owe, it's a good idea to speak with your lender or lease provider to determine if gap insurance is an option.

Is gap insurance a good idea?

Gap insurance isn't something everyone needs. But, if you do need it, you'll be happy you have it.

Whether gap insurance is a good idea depends on your individual circumstances. Here are some factors to consider when deciding if gap insurance is right for you and your vehicle:

  • Do you have a car loan or lease? Gap insurance is only relevant if you have a car loan or lease. If you own your vehicle outright, you do not need gap insurance.
  • Is there a large difference between the value of your car and the amount you still owe? Gap insurance is most useful if there is a significant difference between the actual cash value and the amount you still owe on your loan or lease. If the difference is small, gap insurance may not be necessary.
  • What is your insurance coverage? If you have comprehensive and collision coverage on your vehicle, your insurance company will pay the actual cash value of the car in the event of a total loss. Gap insurance only covers the difference between the actual cash value and the amount you still owe, so it's important to consider the coverage limits of your existing insurance policy.
  • Can you afford to pay the difference out of pocket? If you can afford to pay the difference between the actual cash value of your vehicle and the amount you still owe in the event of a total loss, gap insurance may not be necessary.

In general, gap insurance can be a good idea for people who have a car loan or lease, have a high loan balance relative to the value of the vehicle and have comprehensive and collision coverage on their insurance policy. It is, however, important to consider your individual circumstances and make an informed decision based on what you need.  

How does gap insurance work (example)?

Let's talk through a scenario.

Let's say you recently bought a brand new car for $30,000 and you've taken out a loan for the full amount with a 5-year term. After one year of driving, your car is involved in a severe accident. So severe that your insurance company declares it a total loss. The actual cash value of your car is $25,000. However, you still owe $27,000 on your loan.  

If you do not have gap insurance, you will be responsible for paying the $2,000 difference between the actual cash value of your car and the amount you still owe on your loan. With gap insurance, the insurance would pay the $2,000 difference, so you wouldn't have to come up with the money out of pocket.

Do you get gap insurance money back?

If you don't make a claim, it's unlikely you'll get money put toward gap insurance back. If you have an accident and need to claim your gap insurance, however, you'll be very happy you have it.

Typically, gap insurance purchased from the dealership is a one-time payment that covers the duration of your car loan or lease. If you pay off your car loan early or if you return the leased vehicle before the end of the lease term, you will not get a refund for the gap insurance premium.  

It's important to keep in mind that insurers designed gap insurance to protect you in the event of a total loss of your vehicle, and it is only relevant if you have a car loan or lease. If you no longer have a car loan or lease, you do not need gap insurance, and the premium is not refundable.  

If you have any questions or concerns about gap insurance, speak with a CapCenter Insurance agent of the holder of your CapCenter Insurance policy to understand the terms and conditions of the coverage.