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What Is Gap Insurance?

Gap insurance is an optional car insurance coverage add-on. It can help pay off your car loan if your vehicle is totaled or stolen and you owe more than the car’s worth. 

Kimberly Olson
April 9, 2025

If your car or RV is totaled or stolen, standard vehicle insurance pays the depreciated value of your auto—not its value when you bought it at the dealership. But what if you still owe more on your loan than your car or RV is worth? Gap insurance is add-on coverage that can help protect you.

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How does gap insurance work?

Suppose you finance a new sedan for $30,000, and a year later, you total it. Your car insurance covers the car’s depreciated value of $22,000, but you still owe $25,000 on the loan. That leaves a $3,000 gap between what your auto policy pays and what you owe your lender. Depending on the policy, gap insurance would cover the $3,000 difference.

What does gap insurance cover?

If collision and comprehensive coverage is included in your car or RV policy, you likely can get gap insurance. (If you took out an auto loan, your lender might require that you buy comprehensive and collision coverage anyway.)

Gap insurance generally kicks in when the total losses to your car are due to:

  • A collision or crash
  • Theft or vandalism
  • A natural disaster (fire, flood, tornado, or hurricane)

What can affect your payout amount?

When you file a gap insurance claim, your claim payment may be less due to a number of factors, including, but not limited to:

  • Unpaid finance charges
  • Past due payments and fees related to past due payments
  • Costs for extended warranties
  • Any amounts your auto insurer deducts for wear and tear, collection or repossession expenses, or existing damage (prior to the incident)

Who should get gap insurance?

If you have a brand-new vehicle—whether that’s a car, electric vehicle (EV), or RV—you may consider buying gap insurance. 

Gap coverage can make sense for any driver who has an upside-down auto loan, meaning the amount you owe on your loan exceeds your vehicle’s depreciated value. This can be especially true if your vehicle’s value has really dropped since you purchased it, if you’ve logged lots of miles on it, or if you lease your vehicle.

Consider this: Can you cover the gap between your vehicle’s current market value and the balance on your car loan or lease if it gets stolen or damaged beyond repair? If not, buying gap insurance may be a good choice.

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Frequently Asked Questions:
Gap Insurance

You may consider buying gap insurance if:

  • You’re “under water”: Gap insurance makes sense when you owe more on your auto loan or lease than your vehicle is worth.
  • You own a popular set of wheels: Do car thieves favor your make and model? If it gets stolen, gap insurance extends your comprehensive auto insurance to cover the amount between the car’s actual value and the loan amount.
  • You can’t bridge the gap: If you know you’re unable to pay the difference between your vehicle’s value and the outstanding balance on your auto loan out of pocket, gap insurance protects you.

Note: If you have a long commute, your car’s higher-than-average mileage may cause its value to plummet. If you made a small down payment—or none at all—you may also owe more than your car’s value. Check a respected industry guide, such as Kelley Blue Book, to determine your ride’s current market value.

It varies by insurer. Check your policy or work with your agent to determine how your gap coverage will kick in for a covered loss.

An insurance company generally has 30 days to investigate your claim. However, there are several factors that may impact the timing of your claim payout, such as:

  • How quickly you file your claim
  • The severity of the accident
  • State laws
  • Any associated lawsuits or legal involvement

Yes, you can sometimes buy gap insurance after a vehicle has been purchased. Insurance companies typically allow this if the vehicle is a certain age (usually one to five years old).

The cost of gap insurance is usually about five percent of your annual car insurance premium.

Content on this page is for informational purposes only and should not be considered as official recommendations or advice from AAA Northern California, Nevada & Utah.

The availability, qualifications, and amounts of coverages, costs and discounts may vary from state to state and there may be coverages and discounts not listed here. In addition, other terms, conditions, and exclusions not described above may apply, and total savings may vary depending on the coverages purchased. For more information regarding your eligibility for certain coverages and savings opportunities, please contact your AAA agent. Insurance products in California offered by AAA Northern California Insurance Agency. License #0175868, in Nevada by AAA Nevada and in Utah by AAA Utah. Insurance provided by CSAA Insurance Group, a AAA insurer.