How much is the average GAP insurance premium?

GAP insurance can save you a lot of money if your car is totaled, but how much is the average GAP insurance premium? GAP insurance will pay the remainder of your loan after your insurance pays you in a total loss. If you own more than the car is worth, GAP insurance is absolutely worth it. There are two main ways to get GAP insurance: through an insurance provider and a dealership. They'll set rates at that time.

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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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Dan Walker graduated with a BS in Administrative Management in 2005 and has been working in his family’s insurance agency, FCI Agency, for 15 years (BBB A+). He is licensed as an agent to write property and casualty insurance, including home, auto, umbrella, and dwelling fire insurance. He’s also been featured on sites like Reviews.com and Safeco. He reviews content, ensuring that ex...

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Reviewed by Daniel Walker
Licensed Auto Insurance Agent

UPDATED: Jan 7, 2022

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Things to Remember

  • Since your car depreciates value quickly, it’s possible to owe more on your auto loan than your car is worth
  • If your insurance declares your car a total loss, GAP insurance will pay the difference between your car’s value and the remainder of your loan
  • GAP coverage isn’t sold by every insurance provider, but it’s typically inexpensive

Other than a house, one of the most significant investments you can make is the purchase of a new car. A new car will get you where you need to go, retain its value for years to come, and – hopefully – be fun to drive.

After your car leaves the dealership, it loses part of its value. If something happens to your new car and it’s totaled, your insurance will only pay you for the vehicle’s total value. That means if you owe more on your loan than the car is worth, you’ll be stuck paying for a vehicle you no longer have.

How do you guard against that? GAP insurance. GAP insurance will cover the difference between what you owe on your loan and how much your car is worth.

How much is the average GAP insurance premium? It varies based on the car, how much you put down, and other factors. To find the best prices available, you should shop around for quotes. Enter your ZIP code into our free tool to see what quotes might look like for you.

What is GAP insurance?

GAP stands for Guaranteed Asset Protection and is a specialized type of auto insurance. If your car is declared a total loss, GAP insurance pays the remainder of your car loan, so you’re not stuck paying on something you no longer own.

Sometimes, GAP insurance is called a GAP waiver, lease assistance, or loan assistance coverage. It’s also sometimes used interchangeably with loan-lease payoff coverage, although they are not precisely the same thing.

Many people think that their comprehensive and collision is enough to protect their car. Full coverage indeed helps replace your vehicle if it’s totaled. While every insurance company is different, they usually pay you the vehicle’s actual cash value (ACV).

The ACV of your car will be calculated at the time of an incident. That means the insurance company will consider your car’s depreciation when determining its value. If your vehicle is totaled, you’ll be paid for the ACV, not how much you bought the car for.

Without GAP coverage, you’d be responsible for the difference between your ACV and the remaining loan balance.

What does GAP insurance cover?

GAP coverage will pay out for anything your insurance company will declare a total loss. There are two main reasons an insurance company will report a car a total loss: damage and theft.

Most companies will declare a total loss for damage when the cost of repairs to your car reaches a threshold of damage. Usually, the threshold is between 65 and 90 percent of your car’s ACV.

Most companies give police between two weeks and 30 days to recover your car. After that, your vehicle will be declared a total loss, and the claims process can begin.

However, GAP insurance only covers your car loan. It does not cover:

  • A car rental between the loss of your car and the purchase of a new one
  • Missing or falling behind on payments
  • Car repairs
  • Things that were rolled into your loan, such as late penalties, credit life insurance, or extended warranties
  • Payments for medical bills, lost wages, or funeral expenses
  • The down payment for your new car

Additionally, GAP insurance only kicks in when your car is a total loss.

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How does GAP insurance work?

Unfortunately, your car will lose as much as 60 percent of the original price you bought it for in the first five years you own it. After that, your car loses a little value every year.

Insurance companies take different items into consideration for the depreciation of your car. Usually, they use your car’s age, make and model, extra features, damage before the total loss, mileage, and the price of comparable vehicles.

As an example of how GAP insurance works, suppose you get into an accident, and your car is badly damaged. The insurance company assesses the damage to your car and declares it a total loss. The ACV of your vehicle is valued at $10,000.

However, you owe $15,000 on your loan still. That leaves you with a difference of $5,000 after your insurance company pays for your car. If you don’t have GAP, that $5,000 is your responsibility.

If you have GAP, your insurance will first pay for the ACV (after you pay your deductible). Then, your GAP coverage would pay the rest of your loan, up to the limit of your policy.

Keep in mind that you need to make your car loan payments until your insurance company resolves your claim.

How much does GAP insurance cost?

Before you look at the price of GAP insurance, you should first find out which companies sell it. Even amongst the biggest insurance companies, not everyone sells GAP.

When you buy a car from a dealership, they may roll the price of GAP coverage into the price of your car to protect the lender.

You also don’t have an infinite amount of time to purchase GAP when you buy a new car, usually around 30 days. If you buy from a third party, you can probably purchase GAP at any time.

Companies that sell GAP (or at least coverage similar to GAP) are:

  • American Family
  • Allstate
  • Nationwide
  • State Farm (only for State Farm bank loans)
  • Progressive
  • The Hartford

However, knowing a company sells GAP is only half the battle. You need to compare car insurance quotes to get the best price possible.

Typically, GAP costs around six percent of your collision and comprehensive insurance. That usually equals about $5 per month. However, your insurance provider will probably look at your car’s ACV, your state of residence, and your insurance claims history to set a price.

If you get your GAP coverage from a dealership, they usually charge a one-time fee of about $500.

It’s simpler to get GAP coverage through an insurance company, but they usually require that you have either collision or comprehensive on your vehicle.

Is GAP insurance worth it?

GAP coverage isn’t always worth it, but it can be invaluable for the right person.

The best time to get GAP insurance is when there is a significant difference between your loan and your car’s ACV. Typically, this happens if you make a down payment of less than 20 percent of the total price of the vehicle, or your loan will last longer than 60 months.

People who have paid off their cars, drivers with used vehicles, or new car owners with short loans probably don’t need to get GAP insurance.

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Find the Best Insurance with GAP Coverage

GAP insurance can mean the difference between getting a new car after an accident and being left paying a loan for something you no longer own. Because it’s so cheap, getting GAP coverage from an insurance provider has very few drawbacks.

To find out how much GAP insurance is, you should shop for personalized quotes. Enter your ZIP code into our free tool to see what rates might look like for you.

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