Should I Get Gap Insurance on a Used Car?

Gap insurance may be worth adding to your used car insurance policy if you owe more on the vehicle than it’s worth.
Written by Sarah Gray
Edited by Maria Cruz
Gap insurance is typically a
car insurance
policy add-on recommended for new cars, but you can add it to a used car policy as well. Note that not all car insurance companies offer gap insurance policies for used vehicles, and those that do will usually have restrictions on vehicle age and/or mileage.

Do you need gap insurance on a used car?

Guaranteed asset protection or gap insurance is rarely required by vehicle lenders and is not required by any state’s auto insurance laws. Generally, gap coverage isn’t recommended for used vehicles, as it provides no value if you don’t owe more on your car than it would be worth in a total loss situation.

When is gap insurance worth it for a used vehicle?

If your car loan balance is higher than the ACV or actual cash value of your car, purchasing gap insurance could be worth it. Since your car insurance company will only pay out up to your vehicle’s ACV, gap insurance coverage can protect you from getting left with a car payment on a vehicle you no longer have due to theft or total loss. 

How does gap insurance work?

Following a total loss, your insurance provider will determine the vehicle’s actual cash value and issue you or your lender a check for that amount, minus your deductible for collision insurance or comprehensive insurance. Ideally, this check will satisfy the loan balance and you’ll be free to move on—but if you’re upside down, meaning you owe more than your car is worth, then gap insurance covers the negative equity between your loan balance and the total loss payout.
Gap insurance in action
Shortly after leaving the used car lot, you get in an accident that totals your car. You have a loan balance of $24,400, but the insurance adjuster calculates a total loss payout of just $19,900.
Guess who is responsible for that remaining $4,500 auto loan balance? That’s right—you are. You’ll have to continue making loan payments on a totaled car.
Here are some situations that can lead to your loan balance exceeding your car’s actual cash value, even with a used vehicle:
  • Your used car is less than three years old—though depreciation is fastest during a new vehicle’s first year, it still continues to lose value over its lifetime.
  • You made a small down payment—if you put less than 20% down on your loan, your balance is likely to be more than your ACV, even on a used car. 
  • You select a lengthy loan term—added interest for loans longer than 48 months on a used vehicle can lead to negative equity.
  • You turn over a lot of miles—the higher your mileage, the lower your car’s value.
  • You rolled over negative equity—if you still owed money on a car loan before trading it in for a new used car, the difference between the car’s value and the loan amount would be added to your new loan.
The bottom line: Gap insurance isn’t always the best investment for a used car. If your loan balance is less than what your car is worth or you own your used car outright, you don’t need gap insurance.
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Pro tip: If you’re ever unsure of the value of your vehicle, you can take a look up the estimated market value for your vehicle make, model, trim, and configuration in your area on Kelley Blue Book or Edmunds. 

Where to buy gap insurance

You have a few options when it comes to deciding where to purchase your gap coverage:
  • From a car dealership—if the value of the vehicle is less than your loan amount, your dealer will usually offer you gap coverage as part of your financing bundle. Though this can be convenient, if your gap insurance is rolled into your vehicle loan, you’ll pay interest on it, which is not your most cost effective option.
  • From your lender—similar to purchasing coverage from a dealer, purchasing it from a lender often results in interest charged on your gap insurance premium.
  • From an auto insurance company—most major insurers, like
    Nationwide
    ,
    Allstate
    , and
    Progressive
    , allow you to add gap insurance to a new or existing
    full coverage auto insurance policy
    .

Used car gap insurance restrictions and exclusions

Generally, providers restrict availability of gap insurance to cars less than three years old. In some cases, you may also see mileage restrictions. 
In addition to age and mileage restrictions, you’re also likely to encounter exclusions. These exclusions can reduce or eliminate your gap coverage payout if you have:
  • Overdue payments
  • Unpaid finance charges, warranty costs, or balloon payments
  • A deductible (collision and comprehensive deductibles are automatically excluded from gap coverage payouts)
  • Damage from a previous accident.
To ensure you understand all the exclusions and restrictions that apply to your gap coverage, read your policy carefully, and don’t hesitate to reach out to your insurance agent with questions.

How much does gap insurance cost?

Gap insurance coverage costs vary depending on individual factors, but typically, this type of coverage increases your insurance rates by about $5 to $40 per month. In general, you can expect gap insurance to account for about 5–6% of your overall car insurance coverage costs.
To find the best price on a full coverage policy with gap insurance, it’s a good idea to
compare car insurance quotes
from at least three to five providers. 
If you choose to purchase gap insurance from your dealership or lender, you should expect to pay a one-time fee between $300 and $700. This may sound much cheaper than buying from an insurance carrier, but remember that this fee is usually rolled into your vehicle loan, which means you’ll also pay interest through the life of your loan.
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FAQ

How does gap insurance on a car work?

Gap insurance on a car works by paying the difference between what you owe on your car loan and the value of your vehicle, minus any deductibles. In other words, if you owe more on your car than it’s worth, gap coverage will pay out the difference in a total-loss scenario to ensure you’re not stuck with the remaining loan balance.

Can gap insurance be added later?

Typically, gap insurance can be added after vehicle purchase.

Do you get unused gap insurance back?

If you cancel your policy or sell your vehicle before your gap insurance coverage expires, you can typically receive a refund for the unused portion of your premiums.

What is gap insurance for a used car?

Gap insurance for a used car is the same as gap insurance for a brand-new car. If you owe more on your car than it’s worth, gap coverage works by paying off the difference (minus deductibles) in a total-loss scenario between your loan balance and vehicle value to ensure you’re not stuck with the remaining loan balance.

Does gap insurance cover theft?

Yes—gap insurance covers losses associated with most total-loss situations, including theft.

Is gap insurance worth it on a used car?

If your car loan balance is higher than the ACV or actual cash value of your car, purchasing gap insurance could be worth it. Since your car insurance company will only pay out up to your vehicle’s ACV, gap insurance coverage can protect you from getting left with a car payment on a vehicle you no longer have due to theft or total loss. 

What is full coverage car insurance?

Full coverage car insurance is a term commonly used to describe a car insurance policy that includes not only liability insurance meeting or exceeding state minimums but also collision and comprehensive coverage to pay for damages to your own vehicle.

How does gap insurance work after totalling a car?

After totaling a car, gap insurance pays the remaining balance on your vehicle loan (minus any deductibles). In other words, if you owe more on your car than it’s worth, gap coverage will pay out the difference (minus deductibles) in a total-loss scenario to ensure you’re not stuck with the remaining loan balance.

How much does gap insurance cost for a used car?

Typically, gap insurance costs between $5 and $40 per month from an insurance provider or about $300 to $700 from a dealer or lender. Though purchasing from a dealer or lender may seem more cost effective, remember that this fee is usually added to your car loan, so you’ll also be paying interest.

Meet our experts

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Sarah Gray
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Licensed Insurance Agent — Expert Insurance Writer and Editor
Sarah Gray is an insurance writer with nearly a decade of experience in publishing and writing. Sarah specializes in writing articles that educate car owners and buyers on the full scope of car ownership—from shopping for and buying a new car to scrapping one that’s breathed its last and everything in between. Sarah has authored over 1,500 articles for Jerry on topics ranging from first-time buyer programs to how to get a salvage title for a totaled car.
Prior to joining Jerry, Sarah was a full-time professor of English literature and composition with multiple academic writing publications.
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Maria Cruz
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Expert Insurance Writer & Editor
Maria is an insurance writer with over 10 years of experience as a professional writer. Prior to joining Jerry’s editorial team in 2023, she worked at various online publications like Nimble Media, Factinate.com, and served as editor-in-chief at The Medium. She holds a double major in English and Professional Writing and Communications.

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