What is gap insurance

What is Gap Insurance?

What is gap insurance?

Gap insurance is an optional auto insurance coverage. That uses If your car is robbed or deemed a complete loss.

The gap insurance coverage pays the difference when your loan amount is more than your vehicle is worth.

Gap insurance may also be called “loan/lease gap coverage.” Gap insurance helps pay the gap between what you still owe on the car and the depreciated value of your car.

Gap insurance coverage is only available if you are the original loan- or leaseholder on a new vehicle.

What is gap insurance

How does gap insurance work?

Gap insurance covers you from devaluation. Once you purchase your car, its value drops—sometimes significantly.

If you lease or finance a vehicle, this devaluation leaves a gap between what you owe and the car’s value.


You finance $30,000 for a new car. You have had it for some years and have made all your payments. It’s now worth $20,000, but you owe $25,000 on your loan, defining a $5,000 gap. Suppose your vehicle is destroyed, your insurer will pay you $25,000 (minus your deductible). Without gap insurance, you will only obtain $20,000 (minus your deductible).

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