Average gap insurance cost in 2024

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Many major car insurers offer gap insurance as an option, typically charging an extra $90 a year, or about $7.50 per month, to add this protection to your policy.

State Farm, Progressive and Allstate are just a few of the companies that offer this coverage.

Gap insurance is a financial safety net for drivers who finance or lease a car. It bridges the gap between the vehicle’s actual cash value and the outstanding balance owed on an auto loan or lease if the car is a total loss, such as after an accident or theft.

“Gap insurance may also be called loan/lease gap coverage,” says Mark Friedlander, director of corporate communications for the Insurance Information Institute (Triple-I), an insurance industry trade group. 

“Gap insurance is an optional coverage that is usually very reasonably priced, typically less than $100 per year in additional premium when added as an endorsement to your existing auto insurance policy,” he says. 

As Friedlander notes, gap insurance is relatively affordable for most vehicles. However, prices can vary widely from state to state.

An average policy with gap insurance may cost $1,364 a year in Iowa but run as high as $4,997 in Missouri.

Besides the question of cost, drivers also ask:  What does gap insurance cover, do rates vary by vehicle, how long does the coverage last and who sells it?

What is gap insurance? 

Gap insurance is an optional vehicle insurance coverage that helps pay off an auto loan or lease if your car is totaled or stolen and you owe more than the car’s depreciated value. It can be added to a policy that includes comprehensive and collision coverages – collision covers damage to your vehicle from an accident, while comprehensive covers damage from a non-collision event, such as theft or weather damage. 

Most car buyers finance their vehicles, taking out a loan for the value of their new car. But it’s easy to forget that cars depreciate as soon as they’re driven off the lot. Often, car owners are driving vehicles that are worth less than what they owe their finance company.

If that car is totaled, the owner’s comprehensive or collision insurance reimbursement will be based on the vehicle’s actual cash value, not the owner’s loan balance. The owner is then responsible for the difference if the actual cash value is below the loan balance.

However, gap insurance can make up the difference.

“When an accident or theft occurs, a driver usually gets paid out on the vehicle’s cash value from their standard insurance coverage,” says Richard Howe, a car accident attorney in Atlanta. “However, without gap insurance, you will still be on the hook for the remaining amount in your agreement. Gap insurance provides peace of mind to drivers that they will be financially protected.

“For instance, let’s say your car is totaled and the actual cash value is determined to be $15,000. However, you still owe $20,000 on your loan. Traditional auto insurance would only cover up to the actual cash value – leaving you with a $5,000 deficit,” says Howe. “But if you have gap insurance, this difference would be covered, relieving you of the financial burden.”

Average cost of gap insurance 

What you pay for gap insurance will depend on your insurance carrier, the make and model of the car you insure, the amount of your loan or lease, and other factors – including the state in which you live. 

Below is a look at some policy rates across the country with gap coverage.

Gap insurance rates for different vehicle types 

The type of vehicle you drive can have a significant impact on your gap insurance rate.

“Luxury cars, sports cars, and SUVs – typically with higher purchase prices – might also come with higher gap insurance premiums. That’s because these vehicles tend to depreciate at different rates compared to standard sedans or compact cars, posing a greater risk to insurers,” Howe says. 

The age of the insured vehicle also will play a critical role in calculating gap insurance rates.

“Newer vehicles, which depreciate more rapidly in the first few years, represent a higher risk for insurers offering gap coverage. As a result, a brand-new car might attract a higher gap insurance premium compared to a model that is several years old,” Howe says. “This reflects the insurer’s risk assessment, considering the steeper depreciation curve and the greater likelihood of a significant gap needing coverage soon after the purchase.”

How long does gap insurance last? 

Gap insurance is recommended for as long as you have a loan or lease to cover the difference between what is owed and the depreciated value of your vehicle or until you no longer owe more than the vehicle is worth.

“The duration of gap insurance coverage can vary based on several factors, including where you purchase the policy, the terms of your financing or lease agreement, and the specific policies of your insurance provider,” Howe says. “However, gap insurance is typically most relevant during the first few years of new car ownership.” 

This period represents the most significant gap between your loan balance and your vehicle’s depreciating cash value.

“Most car buyers benefit from gap insurance when the vehicle is less than three model years old. This coverage is usually aligned with the duration of the car loan or lease, often making it unnecessary beyond a few years because the loan balance decreases to fall below the car’s actual cash value,” Howe says.

You have the option to cancel gap coverage when you determine that it is no longer needed – that’s generally when the loan balance falls below the car’s actual cash value. Howe notes that some insurers also set terms for the automatic expiration of gap coverage after a certain number of years, recognizing that the automobile will eventually be worth more than the loan balance, rendering gap coverage unnecessary.

Where to buy gap insurance

Gap insurance coverage can be purchased from various carriers, including national and regional insurers. Among them:

• Allstate
• American Family
• Amica
• Auto Club Enterprises (AAA)
• Auto Club Group – ACG (AAA)
• Auto-Owners
• CSAA Insurance (AAA)
• Erie Insurance
• Farmers
• Mercury Insurance
• Nationwide
• Progressive
• State Farm
• The Hartford
• Travelers
• USAA*

*USAA is only available to military members and their families.
Source: CarInsurance.com

Car dealerships and auto loan lenders also offer gap insurance. 

The bottom line: Should I get gap insurance? 

Gap insurance is recommended so long as you have a loan or lease where there is a difference between what is owed and the depreciated value of your vehicle, according to Triple-I’s Friedlander. 

He recommends considering purchasing gap insurance if you have made less than a 20% down payment on the purchase of your vehicle, financed the purchase for 60 months or longer, are leasing the vehicle (gap insurance may actually be required under the terms of a lease agreement) or if you have rolled over negative equity from an old car loan into a new loan. 

When buying gap insurance, it pays to shop around and compare carriers and gap insurance quotes carefully. You may end up paying less than expected based on your age, gender, vehicle type and other factors.

Erik Martin

Contributing Researcher

 

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Erik J. Martin is a Chicago area-based freelance writer whose articles have been published by AARP The Magazine, The Motley Fool, The Costco Connection, USAA, US Chamber of Commerce, Bankrate, The Chicago Tribune, and other publications. He often writes on topics related to insurance, real estate, personal finance, business, technology, health care, and entertainment. Erik also hosts a podcast and publishes several blogs, including Martinspiration.com and Cineversegroup.com.