Gap Insurance Explained: When It Makes Sense for Your Auto Loan

Gap insurance is a type of auto insurance designed to cover the difference between the amount you owe on your car loan and the car’s actual cash value (ACV) in the event of a total loss. This insurance is especially advantageous for drivers who find themselves owing more on their car loan than the vehicle’s current value.

How Gap Insurance Works

When you purchase a new car, it begins to depreciate the moment you drive it off the lot. If your vehicle is stolen or totaled in an accident, your standard auto insurance policy will typically pay out the ACV of the vehicle, which can be less than the amount you still owe on your loan. Gap insurance can help cover this “gap,” so you don’t have to pay entirely out-of-pocket to settle your loan balance.

When Gap Insurance Makes Sense

Gap insurance may make sense in the following scenarios:

• Low or no down payment—If you financed your car with little or no down payment, you are likely to owe more than the car’s value for a significant period. Gap insurance can help financially protect you during this time.

• Long loan terms—Extended loan terms can also result in a situation where you owe more than the car is worth. Gap insurance can be helpful in these scenarios.

• High depreciation rates—Some vehicles depreciate faster than others. If you own a car that loses value quickly, gap insurance can be a wise investment.

Learn More

For auto and gap insurance near you, contact My One Stop Insurance Agency.

This blog is intended for informational and educational use only. It is not exhaustive and should not be construed as legal advice. Please contact your insurance professional for further information.