How Do I Know If I Have Gap Insurance?
Last Updated on September 14, 2023
Gap insurance covers the gap between the value of your vehicle and the amount you owe for that vehicle.
You can check the terms of your lease or loan, or check your current car insurance policy, to verify you have gap coverage.
Keep reading to find out everything you need to know about gap insurance, how it works, and how to check if you have gap insurance.
Check Your Car Insurance Policy, Lease, or Loan Documents
Some leases and loans include gap insurance. Your car dealer may have added gap insurance to your agreement, for example, or offered it as an extra add-on.
Check your car insurance policy, vehicle lease, or loan documents to verify if you have gap insurance. Your policy should clearly state your gap insurance coverage, the cost of that coverage, and other information.
You can check if you have gap insurance by:
- Contacting your insurance company or insurance agent
- Checking your recent insurance bills, insurance policy declarations page, or other auto insurance paperwork
- Contacting your lender (like the bank, credit union, or financing company that provided your auto loan)
- Contacting your car dealership
Do I Need Gap Insurance?
You may or may not need gap insurance. If you are leasing or financing a vehicle, then you generally need gap insurance. Many dealerships and financing companies require gap insurance as part of the agreement. If you do not have gap insurance, then you are in violation of that agreement.
You may need gap insurance because of your financing agreement. Or, you may want gap insurance to protect yourself financially:
You Generally Need Gap Insurance When Leasing or Financing a Vehicle: If you do not own your vehicle outright, then you generally need gap insurance. Most financing companies, dealerships, and lenders, like CarMax and Carvana, require gap insurance. The vehicle is the collateral of the loan, and gap insurance protects that collateral from loss.
You May Want Gap Insurance for Your Own Protection: Gap insurance is also important for your own financial health. Let’s say you just purchased a new truck. You paid $50,000 for the truck and owe the dealership $50,000. However, if you get into an accident with that truck next week, then your insurance company will only pay the actual cash value of the truck, minus depreciation. You might receive only $40,000 for your truck but still owe the dealership $50,000. You would need to pay the extra $10,000 out of pocket – unless you had gap insurance, which would cover this gap.
Not All Lenders or Dealerships Require Gap Insurance: You may not need to buy gap insurance. Some dealerships and lenders do not require it, for example. Or, some dealerships let you skip gap insurance if you paid a down payment greater than 20%.
Contact Your Insurer to Add Gap Insurance
Generally, it’s best to buy gap insurance from your car insurance company instead of from the dealership or a third-party financing company.
It’s easy to add gap coverage to your personal auto insurance policy. You’ll pay a few extra dollars per month, then receive the coverage you need.
Insurers may offer gap insurance under different names. Progressive, for example, offers loan/lease payoff coverage. It works similarly to gap coverage, paying off a maximum of 25% of your vehicle’s value (although specific limits vary by state).
Avoid Buying Two Gap Insurance Policies
Your leasing or financing payments may include gap insurance. Check your documentation to make sure you’re not paying for two gap insurance policies.
Some drivers buy gap insurance through their personal auto insurance provider, for example, while still paying for gap insurance through their dealership or financing company.
There’s no advantage to having two gap insurance policies. It’s redundant and unnecessary.
You Can Deny Your Dealership’s Gap Coverage
Many dealerships offer gap coverage on leased and financed vehicles. It may be easy to buy gap insurance directly from the dealership. However, you can also decline this coverage to buy your own gap insurance.
Consider declining your dealership’s gap coverage and buying gap insurance directly from your insurer instead.
Alternatively, if your vehicle loan or lease does not require gap coverage, then you can decline your dealership’s gap coverage and go without it. Some drivers don’t want to pay extra for added peace of mind, while other drivers do.
How Gap Insurance Works
Gap insurance covers the difference in value between your vehicle and the amount you owe for your vehicle.
Some dealerships and financing companies require gap insurance. Others do not. Some leases and car loan payments include gap insurance. Or, you can decline the dealership’s gap insurance and buy your own gap insurance through a third party – like your own insurance company.
Here’s how gap insurance works:
- Gap insurance is a supplemental auto insurance policy designed for new vehicles.
- If a new vehicle is damaged or stolen, then the value of the vehicle may be significantly less than the amount of money you owe for the vehicle.
- The value of a new vehicle drops substantially from the moment you drive it off the lot. If you get into an accident, or if your car is stolen during the first few months or years of ownership, then the value of your vehicle may be lower than what you owe on the vehicle.
- A standard insurance policy only covers the actual cash value of the vehicle minus depreciation. It does not consider the amount you owe for the vehicle. You might receive 20% less from your insurance company than what you owe for the vehicle, and you still owe this difference to the dealership.
- Some dealerships require gap insurance. Others do not require gap insurance in certain situations – say, if you make a down payment of at least 20% on your vehicle.
- You do not need to carry gap insurance for the life of the vehicle. Instead, most drivers carry gap insurance until the balance of the loan is less than the value of the vehicle.
Gap insurance may or may not be worth it, depending on your situation. If you recently purchased a new vehicle and want peace of mind, or if you are leasing a vehicle, then gap insurance could be the smart choice.
How to Check If You Have Gap Insurance
You can check for gap insurance in multiple ways, including:
Check Your Insurance Documentation: Check recent bills, look at your insurance policy online, open your insurer’s app, or check your insurance policy’s declarations page to verify whether or not you have gap insurance.
Contact Your Insurer: Call your insurer or contact your insurance agent to ask if you have gap insurance.
Check with Your Bank, Credit Union, or Auto Lender: If you received an auto loan from your dealership, bank, or credit union, then contact your lender or lienholder to determine if gap insurance was included in the loan. Some lenders include gap insurance automatically, while others include it as a mandatory part of your loan.
Check Your Dealership Paperwork: Paperwork from your car dealership may disclose gap insurance information. If leasing or financing a vehicle from a dealership, then any of the related paperwork could mention gap insurance.
Gap insurance is an important type of coverage on new vehicles. If you don’t have gap insurance, then you could receive much less from your insurance company than you currently owe on your vehicle.
To check if you have gap insurance, check your insurance documentation, contact your insurer, or check with your lender.