If you have a new or expensive vehicle, consider gap insurance – it covers the difference in value between what you owe on your loan and the actual cash value (ACV) of your car.
New vehicles lose their value due to age and wear and tear, which is known as depreciation. How quickly your car depreciates varies, but most new vehicles lose 20% of their value within the first year and 40% of their value by year five.
Gap insurance covers the difference between the current value of your car and how much you owe on a lien if your vehicle is totaled or stolen so you don’t have to make payments on a car you can’t drive.
- Gap insurance pays the difference between the actual cash value (ACV) of your car and how much you owe on your loan or lease.
- The average cost of gap insurance is $89 per year.
- Gap insurance offered by auto dealerships is more expensive than gap coverage offered by an insurance company.
How much is gap insurance?
The cost of gap insurance can vary depending on who you purchase it through, but the peace of mind in knowing that you will not have to pay a lump sum for the difference if the unfortunate happens may be worth the cost.
The cost of gap insurance depends on where you buy it. You have two options: through your insurance company or through the auto dealership where you bought your car.
The average cost of gap insurance from an insurance company ranges from $35 to $208 per year, and is included as part of your insurance premium, according to Jimmi Lewis, an insurance agent with myIQuotes, a division of Alta Vista Insurance.
“We always recommend this option, as adding gap insurance to your auto insurance policy will almost always save you at least 50% compared to purchasing at the dealership,” he says.
Factors that affect the cost of gap coverage include the value of your vehicle and the depreciation rate.
Gap insurance is typically only necessary during the first two to three years of financing, Lewis says, “as those first years are typically when your auto loan is upside down, meaning you owe more than the car is worth.”
ExampleA $40,000 Toyota typically sees little depreciation and the cost of gap coverage may be $50 or less per year, Lewis says.
On the other end of the spectrum, a $100,000 Range Rover may cost $150 or more per year for gap coverage due to the high cost and quick depreciation rate on these vehicles.
How much is gap insurance at the dealership?
The finance department at an auto dealership will almost always offer gap coverage, Lewis says. Usually, they will offer to build the cost into your loan payments. However, it’s usually much more expensive than gap coverage offered by an insurance company.
In fact, some dealerships were found to mark up gap insurance costs by 300%, according to 2019 research from the National Consumer Law Center, which did a report on add-on services and features at dealerships.
Typically, gap insurance through a dealership is billed as a flat fee. However, because the cost gets rolled into your loan, it could cost even more since you also end up paying interest on it.
Read our detailed guide: What is gap insurance and what does it cover?
How to compare the cost of gap insurance
The best way to compare gap insurance quotes is by shopping for a car insurance policy that includes gap coverage as you shop for your new car.
If you already have a policy, Lewis recommends speaking with your insurance agent before purchasing a vehicle.
“They can help provide you with an estimate for both the insurance coverage for the new vehicle and also the cost of gap insurance. This is great data to have before heading to the dealership,” he says.
Still, it’s a good idea to get quotes from multiple insurers — for both the cost of a policy on a new car and gap coverage — in case there’s a better deal out there.
Once you have that initial rate quote in hand, you can start shopping with other car insurance companies for the same types of coverage, limits and deductibles so you are comparing like policies. Now you will know how much to budget for your car payment and insurance, including your gap coverage.
Below, you can see the average cost of gap insurance from some of the largest car insurance companies.
| Company | Premium without gap insurance | Premium with gap insurance | Cost of gap insurance |
|---|---|---|---|
| Sentry Insurance | $5,956 | $5,980 | $24 |
| Safety Insurance | $1,772 | $1,797 | $25 |
| Iowa Farm Bureau | $2,517 | $2,543 | $26 |
| Mercury Insurance | $2,962 | $3,004 | $41 |
| State Farm | $1,822 | $1,869 | $46 |
| Travelers | $1,977 | $2,026 | $49 |
| Progressive | $2,640 | $2,692 | $53 |
| American Family | $1,998 | $2,056 | $58 |
| Auto-Owners | $1,850 | $1,912 | $62 |
| Nationwide | $2,115 | $2,183 | $69 |
| Mapfre Insurance | $1,424 | $1,493 | $70 |
| The Hanover | $1,760 | $1,831 | $71 |
| Vermont Mutual | $1,353 | $1,424 | $71 |
| Auto Club Group – ACG (AAA) | $1,423 | $1,505 | $82 |
| Auto Club Enterprises (AAA) | $2,394 | $2,483 | $89 |
| Kemper | $2,531 | $2,622 | $91 |
| Frankenmuth Insurance | $1,402 | $1,503 | $101 |
| Shelter Insurance | $2,366 | $2,480 | $114 |
| Allstate | $3,947 | $4,066 | $119 |
| The Hartford | $2,770 | $2,891 | $121 |
| Amica | $3,063 | $3,189 | $127 |
| Farmers | $3,928 | $4,092 | $163 |
| CSAA Insurance (AAA) | $6,134 | $6,302 | $168 |
| Erie Insurance | $1,390 | $1,628 | $238 |
| USAA* | $996 | $1,047 | $51 |
*USAA is only available to members of the military community and their families.
Another valuable piece of information is knowing the average costs of gap insurance by state. The table below provides information on these rates.
| State | Premium with gap insurance | Cost of gap insurance |
|---|---|---|
| West Virginia | $1,553 | $35 |
| Iowa | $1,364 | $39 |
| North Dakota | $1,434 | $50 |
| Washington | $1,866 | $50 |
| Georgia | $2,290 | $51 |
| Maine | $1,595 | $54 |
| New Mexico | $2,278 | $54 |
| Massachusetts | $2,326 | $56 |
| Florida | $3,814 | $61 |
| New Hampshire | $1,442 | $62 |
| Oregon | $2,083 | $63 |
| Vermont | $1,435 | $65 |
| Idaho | $1,693 | $68 |
| Delaware | $3,334 | $69 |
| Virginia | $1,894 | $69 |
| Texas | $3,364 | $70 |
| New Jersey | $2,771 | $72 |
| Indiana | $1,966 | $73 |
| Tennessee | $2,050 | $75 |
| Utah | $2,297 | $75 |
| Alabama | $2,352 | $80 |
| Illinois | $2,136 | $81 |
| Washington, D.C. | $2,070 | $82 |
| Rhode Island | $2,549 | $83 |
| Arkansas | $2,225 | $86 |
| Nevada | $3,792 | $86 |
| Ohio | $1,407 | $86 |
| Minnesota | $2,435 | $87 |
| Mississippi | $2,144 | $87 |
| Nebraska | $2,228 | $87 |
| Kansas | $2,247 | $90 |
| Maryland | $3,152 | $94 |
| California | $2,832 | $95 |
| South Dakota | $2,909 | $95 |
| Wisconsin | $2,297 | $96 |
| Arizona | $3,251 | $104 |
| Connecticut | $2,976 | $104 |
| Oklahoma | $3,022 | $104 |
| Kentucky | $3,332 | $105 |
| Pennsylvania | $2,467 | $111 |
| Michigan | $4,082 | $149 |
| Colorado | $4,002 | $156 |
| Missouri | $4,997 | $204 |
| Montana | $4,597 | $208 |
You may also look at who you are financing your car through to see if they offer gap insurance and compare that cost to adding it to your car insurance policy and see which is the best deal.
Lewis notes that if you purchase a used vehicle, gap insurance may not be available through your insurance company.
“Each insurance carrier has their own guidelines detailing what vehicles and age ranges they accept,” he says.
Gap insurance providers: Where to buy gap insurance
Does gap insurance give you money for a new car?
Gap insurance doesn’t pay for you to get a new, replacement vehicle. Instead, it ensures that you don’t have to continue payments on a car that is a total loss.
Gap insurance pays the difference between your car’s worth and what you owe on your car loan if your vehicle is stolen or totaled. Specifically, it pays the difference between the actual cash value of your car at the time of the loss and the amount owed on the vehicle to a lender at the time of an accident or theft.
If you have a new car and are worried about replacing it if it gets totaled, you can look into new car replacement coverage. This coverage is typically more beneficial to someone who doesn’t owe more than the vehicle’s worth.
New car replacement coverage pays out what it will cost to buy a brand-new car (minus your deductible) of the same make and model as your totaled or stolen vehicle.
Check out our detailed guide on how to cancel your gap insurance
Resources & Methodology
Sources
- Fortunly.com. “US Car Sale Statistics: Figures, Trends and Historical Data.” Accessed December 2024.
- KBB.com. “How to Beat Car Depreciation.” Accessed December 2024.
- National Consumer Law Center. “Auto Add-Ons Add Up.” Accessed December 2024.
Methodology
CarInsurance.com editors in 2024 collected rates from Quadrant Information Services for a 40-year-old male and female driving a 2023 Honda Accord LX with a good insurance score and no violation on record for a full coverage insurance policy with limits 100/300/100 and $500 comprehensive and collision deductible. We analyzed 5,073,544 records, 1,468 ZIP codes and 138 insurance companies nationwide.
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