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Nerdy takeaways
- Gap insurance helps to pay for the difference between your car’s value and the remainder of an auto loan or lease after your car is stolen or totaled.
- The terms of your auto loan or lease may require you to have gap insurance.
- If you get gap insurance through a lender instead of an insurance company, it could be more expensive because your payments would include interest.
A new car is a big purchase, and many drivers end up making auto loan or lease payments for years. If your new car is stolen or totaled in an accident, you could be responsible for paying off your loan — even if you owe more than your car is worth. This is where gap insurance can help.
Gap insurance is a type of car insurance that pays the difference between what your vehicle is worth and the amount you still owe on your totaled or stolen car.
Many car insurance companies offer gap insurance as an optional add-on. Gap insurance may cost less than many other types of insurance, but it's still a good idea to compare car insurance rates to find your best price.
What does gap insurance cover?
Gap insurance covers what’s owed on a car after a total loss, whether that’s the result of an accident or vehicle theft. Gap insurance pays out after comprehensive and collision coverage, two coverage types that are typically required when you buy or lease a new vehicle. (They pay for damage to your car after things like accidents, fire or vehicle theft.)
However, comprehensive and collision insurance pay only what a car is worth at the time of a theft or accident. So when you owe more on your car loan or lease than that, gap insurance covers that amount.
🤓 Nerdy Tip
In most cases, gap insurance doesn't cover your comprehensive or collision deductible. Your deductible is the amount your insurance subtracts from a claim payout. How does gap insurance work?
Let’s say someone stole your new car, and at the time it was worth $25,000. Unfortunately, you still owe $30,000 on the car. You have comprehensive insurance, which will pay for the value of your car at the time of theft. You’re responsible for your $500 insurance deductible, and then the insurance company pays $24,500 to your lender — but there’s still $5,500 due on your loan.
Gap insurance is designed to pay that final $5,500 so you don’t owe money on a totaled car. But without gap insurance, you’ll have to cover the balance on your loan as well as your insurance deductible.
Here is a visual of that example:
| Gap coverage example | ||
|---|---|---|
| Loan left to be paid | $30,000. | |
| Current value of car | $25,000. | |
| Comprehensive insurance deductible | $500. | |
| Comprehensive insurance pays your lender | $24,500. | |
| Amount still due on loan after insurance claim payout | $5,500. | |
| With gap coverage, driver only pays deductible | $500. | |
| Without gap coverage, driver pays deductible and pays off auto loan | $5,500. | |
» MORE: What does car insurance cover?
Is gap insurance worth it?
You don’t need gap insurance unless you lease a vehicle or have a loan. You also don’t need it if your loan is paid down below the value of your car.
But if you do have a lease or loan, you may want to think about whether you can afford to pay the difference between the amount you still owe and the value of your car. If you couldn’t make that payment, or don’t want to deal with that financial stress in an emergency, then you’d probably benefit from having gap coverage.
🤓 Nerdy Tip
Drop gap coverage when your car loan is less than the current value of your car. Online pricing guides like Edmunds or Kelley Blue Book can give you an idea of how much your car is worth. Insurers might not drop it automatically, so you may need to remove it. How to get gap insurance
You can generally only add gap insurance to your policy if you still owe money on the vehicle or lease. Although insurers’ guidelines vary, a company may require one or both of the following:
- Your car is no more than two to three years old.
- You are the original owner of the vehicle.
There are two main ways to buy gap insurance:
- From your auto insurer, as part of your regular insurance policy.
- Through the dealership or lender, rolled into your loan payments. With this arrangement, you’re paying interest on the cost of your gap insurance over the life of the loan, making the coverage far more expensive.
If you buy through your dealership or lender:
- Check your auto loan contract to see if you’re required to have gap insurance — not all lenders require it. However, your lender will generally require you to buy comprehensive and collision coverage.
- A dealer may automatically include gap insurance if you lease your car, so make sure to check your lease agreement.
- If you already bought gap insurance from your dealer and want to buy it from your insurer, you may be able to remove it from your car loan contract. Make sure you have coverage during the transition if you switch providers.
🤓 Nerdy Tip
NerdWallet recommends buying gap coverage through your auto insurer rather than from a dealership to avoid paying interest on it. Not all car insurance companies provide gap coverage (or an equivalent) or offer it in all states, so if you decide you want this type of insurance, you may need to switch companies. Which insurance companies sell gap coverage?
Some of the largest insurance companies that offer stand-alone gap insurance (or an equivalent) as add-ons to car insurance policies are:
» MORE: Get the cheapest car insurance
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How much does gap insurance cost?
Auto insurers may charge around $50 to $150 per year for gap insurance, according to the Insurance Information Institute. Your cost depends on individual factors, like your car’s value. You’ll also need to buy comprehensive and collision coverage.
Lenders charge a flat fee of around $500 to $700 for gap insurance, according to United Policyholders, a nonprofit consumer group. But if you add the coverage to your loan, you’ll also pay interest on it. That means you could pay more than that $500 to $700 for three years of gap coverage from a dealer, compared with around $150 to $450 over three years from your auto insurer.
Prices and interest rates will vary, so always check with your dealer and car insurance company to accurately compare costs.
Alternatives to gap insurance
Gap insurance isn’t the only way to protect yourself if your car is stolen or totaled. Depending on your needs, you may want to add one of these coverage options instead of gap insurance:
- New-car replacement insurance: If you’re more worried about buying a new vehicle than paying off your old one, new-car replacement coverage might be a better choice for you. While it's more expensive than gap insurance, this coverage helps pay for a new car of the same make and model, minus your deductible, to replace your vehicle with a new one.
- Better-car replacement coverage: If your vehicle is declared a total loss, this type of coverage will give you money for a model that is newer and has less mileage.
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- 1. Insurance Information Institute. What Is Gap Insurance?. Accessed Mar 9, 2026.
- 2. United Policyholders. What’s UP with Gap Insurance?. Accessed Mar 9, 2026.
