What Is CarMax’s Gap Insurance? Do You Need It?

Last Updated on May 24, 2023

CarMax offers gap insurance to help you receive more compensation for your vehicle after a total loss accident.

With CarMax’s gap insurance, you can avoid being underwater on your vehicle, which means you owe more for your vehicle than it’s currently worth.

What is CarMax’s gap insurance? Do you need gap insurance from CarMax? Should you add gap insurance to your CarMax financing plan? Keep reading to discover the truth about CarMax’s gap insurance.

Table of Contents:

How CarMax Gap Insurance Works

CarMax is a vehicle financing company that makes buying and selling vehicles easier.

When you get financing through CarMax, you have the opportunity to add gap insurance to your plan for added protection.

Also known as guaranteed asset protection (GAP) insurance, gap insurance covers the “gap” between your vehicle’s actual cash value (ACV) and the amount you currently owe for your vehicle.

Some drivers buy gap insurance through CarMax, while others buy it through their personal insurance company, dealership, or financing company.

Most drivers pay $30 to $60 per year for CarMax’s gap insurance.

What Does Gap Insurance Do?

Gap insurance covers the difference in value between your vehicle and the amount you owe on your vehicle.

If your vehicle is involved in a total loss incident, then your insurer pays you based on the actual cash value of your vehicle. In many cases, the actual cash value (ACV) of your new vehicle is lower than the amount you owe on that vehicle, which means there’s a “gap” between the ACV and the amount you owe.

Gap insurance can cover total loss incidents caused by:

  • Fire
  • Theft
  • Accidents
  • Hurricanes
  • Tornadoes
  • Floods

If your vehicle is involved in any type of total loss incident, then gap insurance could provide you with additional compensation beyond the ACV of your vehicle. This additional compensation covers the gap between the ACV and the amount you owe.

Do I Need CarMax Gap Insurance?

CarMax’s gap insurance may be the right choice if you fall into any of the categories below:

  • You have a high-interest auto loan
  • You made a small down payment on your vehicle
  • You have a long financing term

In all of these situations, you have a higher chance of being underwater on your vehicle, which means your vehicle is worth less than what you owe.

Why You Should Buy CarMax Gap Insurance: A Case Study

Let’s say you bought a new truck for $50,000. You put 5% down ($2,500) and signed an 8-year (96-month) financing agreement at an interest rate of 4%. The moment you drive your car off the lot, its actual cash value (ACV) drops significantly – say, to $42,500.

If you crash your vehicle on the drive home from the dealership, your insurer will pay you $42,500 for the actual cash value of your truck, but you would still owe your dealership $47,500. There’s a “gap’ of $5,000.

Without gap insurance, you would need to pay this gap out of pocket. You would owe an extra $5,000 beyond what you received from the insurance company.

If you purchased gap insurance from CarMax or your dealership, however, you would receive a payment to cover this gap, which means you don’t pay anything out of pocket.

Do You Need Gap Insurance for a Used Car?

CarMax also sells used vehicles. If you buy a used car through CarMax, you probably won’t need to worry about gap insurance.

Gap insurance isn’t typically recommended for used cars for the following reasons:

  • Used cars depreciate slower than new cars, reducing the risk of owing more on the vehicle than its actual cash value.
  • Used car buyers may have the option to purchase a vehicle for its full value rather than taking out a loan, eliminating the need for gap insurance altogether.
  • The cost of gap insurance can be relatively expensive, and the potential payout may not be worth the cost of the coverage.
  • Some lenders may offer loan terms that minimize the need for gap insurance, such as shorter loan terms or lower interest rates.
  • In the event of a total loss, insurance companies will typically pay the actual cash value of the vehicle, which may be sufficient to pay off the outstanding loan balance without the need for gap insurance.

CarMax MaxCare Versus CarMax Gap Insurance

CarMax offers an optional warranty-style program called MaxCare. This program is different from gap insurance.

Here’s how CarMax’s MaxCare program works:

  • Every car CarMax sells automatically has a CarMax limited warranty (even if the manufacturer’s warranty still covers your car). CarMax’s limited warranty covers your vehicle’s major system, the hundreds of parts inside and outside your vehicle, and the cost of repairing those parts – including labor. The CarMax limited warranty lasts 90 days or 4,000 miles (whichever comes first).
  • If you want added coverage, you can buy an optional CarMax MaxCare package, which functions like an extended warranty or service plan.
  • CarMax offers different MaxCare options based on your vehicle type. However, a typical MaxCare package covers 75,000 odometer miles or 60 months (whichever comes first). You also pay a $50 deductible per visit.
  • MaxCare also includes emergency roadside assistance, discounted deductibles, rental reimbursement, and other perks. Plus, MaxCare covers you when driving anywhere in the United States and Canada.
  • MaxCare does not cover maintenance service and parts, aftermarket accessories, breakdowns caused by misuse, or certain other conditions.

Overall, MaxCare is an extended warranty and service plan, while CarMax’s gap insurance is an insurance product.

CarMax Gap Insurance Requirements

CarMax, like an insurance company, has certain gap insurance requirements. You must meet these requirements to buy gap insurance.

CarMax’s gap insurance requirements have changed over time. However, typical requirements include the following:

  • You must buy gap insurance within seven to 90 days of purchasing a new vehicle from CarMax
  • Your vehicle’s actual cash value must be lower than the amount owing on your vehicle

If you meet these two requirements, then CarMax’s gap insurance may be the right choice for you.

Generally, you have the option to purchase CarMax’s gap insurance the same day you finance your vehicle. You can add gap insurance to your CarMax financing agreement – typically for $30 to $60 annually.

Final Word on CarMax’s Gap Insurance

CarMax’s gap insurance covers the gap between the actual cash value of your vehicle and the amount you owe for your vehicle.

If you have a new vehicle, then you could be underwater on your vehicle, which means you owe more money for your vehicle than you would receive in an insurance claim.

CarMax’s gap insurance may be the right choice if you made a low down payment, signed a financing agreement with a high interest rate, or agreed to a long financing term. All of these situations increase the chance of being underwater on your vehicle.

James Shaffer
James Shaffer James Shaffer is a writer for InsurancePanda.com and a well-seasoned auto insurance industry veteran. He has a deep knowledge of insurance rules and regulations and is passionate about helping drivers save money on auto insurance. He is responsible for researching and writing about anything auto insurance-related. He holds a bachelor's degree from Bentley University and his work has been quoted by NBC News, CNN, and The Washington Post.
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