1. Autos
Send to a Friend via Email

Your suggestion is on its way!

An email with a link to:


was emailed to:

Thanks for sharing About.com with others!

You can opt-out at any time. Please refer to our privacy policy for contact information.

Gap Insurance

What Is Gap Insurance and Why Do You Need It?


What is Gap Insurance? If your car or truck is damaged beyond repair (totaled), gap insurance kicks in to pay the difference between what the vehicle is worth and the amount you still owe on it (filling-in the gap between the two numbers).

Gap Insurance Example: Let's say you paid $30,000 for a new truck on Tuesday, financing all of the purchase price -- and then you totaled the truck on Saturday.

Even though it's only five days old, the value of your pickup dropped the moment you drove it off of the dealer's lot -- it's now considered pre-owned for insurance company calculations.

The truck's value could have already decreased by $5,000 (and even more of a dip is possible in today's shaky auto market). You haven't made a payment yet, but expenses related to the financing process have already accumulated.

You weren't able to put money down when you bought the truck, so you're probably not in a position to find the $5,000+ difference between its value and what's needed to pay it off. Gap insurance does that for you.

Upside-Down Purchases: Buyers sometimes trade-in a vehicle that isn't worth as much as what's owed on it. The excess is often rolled into the price of the new car or truck, making the gap between value and cost even wider, a condition that's often referred to as being upside-down in a loan. Gap insurance becomes even more important in that scenario, because starting out with an inflated purchase price means it will take longer for value and amount owed to equalize, and the more time involved, the more your chances of a loss.

Who Sells Gap Insurance? You can purchase gap insurance from the dealer's source when you buy a new car or truck, but check with your existing insurance agent to find out if he or she can offer protection. Policies differ, so be sure to compare costs and coverage.

What if My Truck is Stolen? Theft is usually included, but read policies carefully to determine what events are covered.

Should I Buy Gap Insurance for a Leased Truck? Yes, unless it's already included in the lease.

What if I Can't Pay Cash for the Policy? Gap insurance can usually be rolled-in to the price of your new truck and financed with other options. If you're not making a substantial downpayment, it's an important add-on to consider.

Bottom Line: Gap insurance coverage means you won't still be making payments on a car or truck after it's totaled.

©2014 About.com. All rights reserved.