Gap insurance in Michigan

While gap insurance isn’t required in Michigan, it takes care of the difference between your insurance payout and car loan balance if your vehicle is totaled.
Written by Jennifer Justice
Edited by Sarah Gray
Gap insurance
—or guaranteed asset protection insurance—covers the leftover amount between the actual cash value of your vehicle and the amount you owe on the loan if your car is totaled.
  • Gap insurance in
    is an add-on
    type of coverage
    that gives you better protection against financial loss if your car is declared a total loss, but your insurance payout doesn’t cover what’s left of the auto loan or lease balance.
  • Michigan law prohibits the cost of gap insurance from exceeding 5% of the vehicle loan amount.
  • Most
    auto insurance
    providers in Michigan carry gap insurance coverage as an add-on to your full-coverage policy.

How gap insurance works in Michigan

Gap insurance can save you financially if your car is totaled since it covers the difference between what you still owe on the original loan and the car’s
actual cash value (ACV)
If your car is declared a total loss and your loan balance is higher than your vehicle’s value, gap insurance helps with that debt. 
Let’s look at why it’s important:
  • A new vehicle loses value from the moment it's yours, with an average 20% drop in value just in the first year of ownership.
  • For the first couple of years of your car loan, the amount you still owe is going to be higher than the cash value of your car.
  • Insurance companies typically use the real cash value of the car to calculate how much they pay when you file a claim if your vehicle is totaled.
  • Gap insurance protects you financially by making up for any shortfalls between whatever you got for your insurance reimbursement and the amount still owed on your auto loan.
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When do you need gap insurance?
You need gap insurance if the coverage limits of your standard auto insurance policy fall short of the vehicle’s total value. 
Gap insurance is usually a good idea if you:
  • Lease your vehicle
  • Finance your car for an extended period (five years or more)
  • Make a low down payment on your vehicle (less than 20%)
  • Drive a highly customized vehicle or a specific make or model that depreciates quickly
  • Rolled over negative equity from a previous vehicle into your current loan

Gap insurance in Michigan can’t cost more than 5% of your loan amount

According to state law, Michigan's gap insurance can’t cost more than 5% of your loan amount. 
  • When looking at choices for gap coverage, it's important to consider how much is still owed on your loan and the estimated depreciation of your car.
  • Consider factors like your vehicle’s make and model, its rate of depreciation, and how long your loan term is when deciding how much gap insurance you want and what coverage will help if your car is totaled.
When you loan or lease a car, your dealership or lender can probably offer you a gap coverage plan, but it's best to look around to avoid paying too much.
You’ll usually get a better deal if you go with a car insurance company instead of whoever you are getting the loan from, even if it’s initially easier to sign up with your lender. Plus, if you add gap coverage to your car insurance, you could
get a discount

Gap insurance companies in Michigan

There are generally two ways to find gap insurance in Michigan: insurance companies and auto loan lenders, such as credit unions.
Let’s look at some insurance companies that offer gap insurance to Michigan policyholders:
  • Allstate
    : Allstate advises adding gap insurance if you have a small down payment, a long loan term, or leased a vehicle.
  • Esurance
    : Esurance pays for the remaining loan balance after you cover a deductible, which is common.
  • Liberty Mutual
    : This popular provider offers standard gap insurance, with a deductible you’ll have to pay before they cover the remaining balance.
  • Nationwide
    : Nationwide gap insurance is generally cheaper than getting the option from your dealership or lender.
  • Progressive
    : Progressive’s loan/lease payment coverage option takes care of up to 25% of your vehicle's value.
  • Travelers
    : Loan/Lease Gap Insurance from Travelers costs about 5% of your car's collision and comprehensive premium.
Because you have a lot of choices when it comes to gap insurance, take time to compare rates across companies, your lender, and the dealership to get the best deal.
Remember: Shopping around helps you find the best rates.
Compare insurance quotes
from several gap insurance providers so you don’t overpay for coverage.
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While gap insurance isn’t required under Michigan law, some lenders might require it. However, even if your lender doesn’t require gap coverage, it’s usually worth it, especially if you only made a small down payment, took out a sizable loan, or bought a model that will lose value quickly.
Gap insurance helps pay off your loan by covering what’s left once your insurance covers the cash value of the vehicle.
New car replacement insurance
gets you back on the road by replacing your vehicle with the same make and model once you pay a deductible.
However, since a typical auto policy only pays for the cash value of a vehicle once it has begun to lose worth, either type of coverage gives you a financial safety net.
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