Should I get GAP insurance on a leased car?

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Things to know...
  • Guaranteed auto protection, or GAP insurance, covers the difference between what is owed on the vehicle and the actual value after the lease expires
  • This coverage option bridges the gap between the vehicle’s cash value at the time it’s totaled or stolen and the outstanding loan
  • Since leased car drivers often owe the vehicle’s worth until the end of the lease, they need GAP insurance to provide protection in the event that the car is stolen or in an accident that leaves it totaled
  • Some auto dealerships include GAP coverage in their leasing; others don’t. Confirm with the dealer before you spend money on a GAP policy.


Guaranteed auto protection, popularly known as GAP insurance, pays for the difference between what you owe on the vehicle and its actual value. If you have a newly acquired lease or are shopping for one, you may be wondering whether GAP insurance is a worthwhile investment.

A vehicle starts to depreciate as soon as you drive off the lot that’s common knowledge. What most people don’t know is a standard car insurance policy will only pay for the value of the vehicle at the time that it’s stolen or in an accident that leaves it totaled.

In some cases, you may find that you owe more on the lease or auto loan than the car is actually worth; this is where GAP insurance comes in. Since auto insurance companies differ in how they predict risks and calculate premiums, make sure that you compare quotes from as many providers as you can when shopping for coverage. Comparison shopping is the most effective way of ensuring that you get the best coverage at a reasonable price.

How does GAP insurance work?

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In the event of theft or an accident that leaves your vehicle totaled, GAP insurance will cover the lease balance or the outstanding loan to supplement the payout you get from the other driver’s liability coverage or your collision or comprehensive coverage.

Some GAP coverage plans can also cover the difference between the settlement amount and the cost of a new car, or give you the extra cash you need to get a new lease after the accident.

In some cases, a GAP plan will also pay the deductible, the amount of money deducted from the settlement amount you get from a collision or comprehensive coverage. Some car insurance companies offer a car lease/loan protection instead of the typical GAP coverage. The car lease or loan protection adds an agreed percentage of the vehicle’s worth to the settlement amount, usually around 25 percent.

Who needs GAP insurance?

GAP insurance can help you get out of a difficult financial situation, but it’s not a necessary coverage — at least for most people. Even people who need it only use it for a few years. You only need GAP coverage if you:

  • Lease a vehicle
  • Have a new car that you use a lot
  • Took out a long-term loan
  • Didn’t make any down payment on your vehicle

You don’t have to carry GAP insurance on your vehicle unless it’s a lease. It’s a requirement in most leasing contracts. If you drive a leased car, you owe the car’s value until the lease expires. GAP coverage will help you pay to clear the difference between the car’s value and the settlement amount in case it’s stolen or if you get in an accident that leaves it totaled.

When shopping for GAP coverage for your lease, go online and compare quotes from multiple providers until you find a policy that suits your coverage requirements.

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How much does GAP insurance cost?

GAP insurance is one of the cheapest auto insurance coverage options available. On average, auto insurance companies often charge around $20 per year for GAP coverage, but you will have to purchase collision and comprehensive coverage as well since that’s where GAP insurance is added.

If you have a lease or a large auto loan, you can ill afford to pass on GAP coverage given its low cost. This coverage option is even cheaper if you purchase it through your auto insurer as a package. Just make sure that you don’t forget to drop it as soon as you pay off your lease or auto loan.

Purchasing GAP Insurance

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Unlike other insurance products, GAP insurance is not regulated by the insurance industry. As a result, many car dealerships and leasing companies can offer the GAP coverage legally. However, costs can be a bit steep when purchasing GAP coverage from leasing companies or auto dealerships, which is why it’s always a good idea to only buy coverage from your auto insurance agent.

Expenses Not Covered By GAP Insurance

GAP insurance doesn’t pay for all the expenses you might expect settlement for in the event of an accident. For instance, the coverage will not pay for:

  • Any equipment installed by the buyer.
  • Any carryover balance from a previous lease or loan.
  • Storage, towing, prior damage, wear and tear as well as any other amounts deducted by the primary insurer.
  • Security deposits that were not reimbursed, if any.
  • Penalties for excessive use under the lease.
  • Any overdue on you lease or loan payments.

There are coverage options such as the leased car warranty or wear and tear insurance, don’t confuse them with GAP insurance. None of these policies will help you if your vehicle is stolen or totaled. Remember that in the case of an accident, you may have to continue with your lease payments until the insurance company releases a pay-out.

Keep in mind that GAP insurance is only applicable if you abide by the terms of your leasing contract. If you want a good deal, compare quotes when looking for GAP coverage. Before you go shopping for GAP coverage, check with your leasing company to confirm whether the GAP insurance policy is woven into your car lease contract.

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