Rachael Brennan has been working in the insurance industry since 2006 when she began working as a licensed insurance representative for 21st Century Insurance, during which time she earned her Property and Casualty license in all 50 states. After several years she expanded her insurance expertise, earning her license in Health and AD&D insurance as well. She has worked for small health in...

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Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

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Reviewed by Jeffrey Johnson
Insurance Lawyer Jeffrey Johnson

UPDATED: May 9, 2022

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In a nutshell

  • GAP insurance is a supplemental form of auto insurance coverage that’s designed for leased and financed cars
  • Not everyone who finances a car needs GAP insurance but anyone who owes more than the car is worth does
  • The purpose of GAP is to pay off a car loan or financial agreement when the financed car is totaled in a covered loss
  • There are restrictions under GAP plans and most insurers won’t pay for negative equity or add-ons that are financed
  • After a total loss claim is settled, you should receive a refund for some of the GAP premiums

Auto insurance doesn’t always provide vehicle owners with enough car insurance.

You may be required to purchase at least a minimal amount of car insurance on all of your personally owned cars, but don’t overlook the importance of buying additional coverage options and supplemental policies.

Anyone who’s going to finance or lease a car should be familiar with GAP and what it does. It can be especially helpful if you think you are entitled to a GAP insurance refund after paying off your car.

GAP can often be made a part of your auto insurance policy. Don’t let the fact that you can add the extra protection under your contract confuse you. GAP is a supplemental form of insurance separate from your traditional car insurance.

Compare car insurance quotes today to make sure you aren’t overpaying for the coverage you need.

The coverage afforded under GAP will save the day if you have a total loss. Read further to discover more details that can help.

What does GAP stand for?

GAP stands for Guaranteed Auto Protection. Its primary purpose is to help vehicle owners who are leasing or financing their vehicles cover the gap between actual cash value of their vehicle and the balance that’s still owed on their financing contract.

It doesn’t always make sense to buy GAP but it can truly help many who finance.

If you’re leasing a car, you don’t have to worry about making decisions because GAP is included as a part of your lease contract. You’re already paying the premiums when you make your monthly payments. When you’re financing, however, you’ll have to decide if you have a need for the protection. Here are some

When you’re financing, however, you’ll have to decide if you have a need for the protection. Here are some scenarios where you should have GAP:

  • You have a high-interest loan
  • You put less than 20% down on your loan
  • You have a loan where the interest is front-loaded
  • You have rolled over negative equity into your loan from a trade
  • You purchase a vehicle that depreciates faster than the average vehicle

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Where do you buy GAP insurance?

GAP insurance can be purchased a few different ways. Lease contracts already include a charge for GAP.

If you’re financing your car as opposed to leasing, you’ll more than likely be offered the option to buy GAP for the entire term of your loan when you’re sitting with the finance officer.

If you didn’t know, it’s the finance department’s job to add extra vehicle features and protections to your loan. The dealer and the offer profit from the additions.

If you’ve already purchased GAP through your finance company, you don’t need to buy more protection under your car insurance.

For those who rejected the offer to buy GAP, you can always consider adding the coverage through insurer if they offer it. Buying GAP on a month-to-month or annual basis tends to be the more affordable option.

How much is GAP insurance from a dealer?

The cost for GAP insurance varies from dealer to dealer. Unlike other types of personal insurance, dealers do have the right to inflate the price of the actual GAP contract to profit from the sale.

This inflation is why they might quote you $1600 in the beginning and suddenly drop the price when you decided against it.

The actual cost of your GAP coverage will be based on the sales price of the vehicle and your loan term. If you have a longer loan term and you’re financing a more expensive vehicle, you’ll pay more than the average person.

The average cost of GAP on a four-year loan if you purchase it from a dealership is between $500 and $700 and that amount typically accrues interest when rolled into the loan. Seasoned car buyers may be able to negotiate the cost down.

How much is GAP coverage through your auto insurer?

The cost for the supplemental coverage is dramatically lower if you find an insurer that offers GAP on newer cars. Always check with your insurer to find out if there are vehicle age requirements for GAP.

You don’t want to turn down the option to buy protection and then find out your car doesn’t qualify.

A general rule of thumb is that the insurer will charge you around five percent of your comprehensive and collision premiums for the year.

The final number will be the total annual premium for the GAP coverage during that term. If you pay $500 for your physical damage coverage, you’ll pay $25 for GAP. That’s just over a two dollar charge every month.

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What are the advantages of buying GAP through a dealership?

While there are obvious financial benefits to buying Guaranteed Auto Protection on your insurance, there are some drawbacks as well. If you’re about to buy a car, don’t automatically reject GAP without asking about pricing.

Here are some of the benefits of buying GAP at a dealer:

  • If you make a claim against your GAP coverage through the dealership, it won’t affect your premiums unless you file an accompanying at-fault collision claim through your insurer
  • You don’t have to pay a deductible for your GAP coverage
  • If you file too many claims on your insurance, you could be canceled and lose your GAP coverage when you’re not eligible to buy GAP elsewhere
  • Less year, make, and model restrictions
  • You have the freedom to switch insurers without worrying about qualifying for GAP with the new provider
  • Insurers may not cover negative equity on a trade-in that’s left on the loan balance

What are the advantages of buying GAP through your insurer?

One of the biggest benefits of choosing to buy GAP through your insurer is that you can save money. For a very minimal charge, you’ll have peace of mind, knowing that you don’t have to worry about paying off your loan on your own after a serious accident.

Here are some other benefits:

  • You won’t pay interest on the cost of GAP coverage
  • You can file a single claim when you total your vehicle
  • You don’t have to send in payoff information because you’ll deal with a single claims adjuster
  • You can cancel GAP off of your policy when you’re close to paying off your loan or you’ve paid down the balance
  • You don’t have to worry about dealing with the dealership to get a refund on GAP premiums

When can you file a GAP claim?

You must have physical damage coverage to file a claim against your GAP insurance. This is the case even if you’re making a third-party property damage liability claim through another insurer after a not-at-fault accident.

If you don’t maintain full coverage on your car, the GAP claim could be denied.

You’ll need to wait to file a GAP claim against your policy until after you’ve settled with your insurer and they have given you what you feel is a fair valuation of your vehicle.

Once that part of the claim is settled, you can give the GAP insurer your 30-day payoff balance so that the claim can be processed.

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Can you get a refund?

Once the claim has been paid, you are entitled to a refund of some of your GAP premiums. If you bought the coverage from the dealership, you’ll get a prorated refund of your total premiums. There’s some more good news, as there is the situation where you can pay off your car early and get a GAP refund.

The refund will depend upon how much time is left on the loan term.

The Bottom Line

Now you should have a better grasp at whether or not you should acquire GAP insurance. Plus, if you already have it, this should help if you think you are up for a GAP insurance refund after the payoff of your car.

If you’re going to buy a new vehicle to replace your vehicle that’s been totaled, start getting quotes for coverage. You could stay with your current insurer or shop elsewhere.

Use our online rate comparison tool to do a thorough comparison and you can find the best prices in just a few minutes.