Does GAP insurance give you money for a new car?

GAP insurance does not give you money for a new car. GAP car insurance covers the remaining amount you owe on your car loan or lease agreement after your vehicle is totaled in an accident. Drivers who are financing or leasing a vehicle will benefit from GAP auto insurance. Get free quotes for GAP insurance below with our free comparison tool.

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Tonya Sisler has a Bachelor’s Degree from the University of South Carolina in Journalism and has worked for 15+ years in management. She has also completed a proofreading certification and is currently a professional writer.

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Brad Larson has been in the insurance industry for more than a dozen years. He started out as a claims adjuster for a national carrier. He has since switched to the agency side of the business. Brad is licensed in all P&C lines.

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Reviewed by Brad Larsen
Licensed Auto Insurance Agent Brad Larsen

UPDATED: Apr 15, 2022

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Things to know...

  • GAP, also known as Guaranteed Auto Protection, is a supplemental type of insurance that is available to borrowers
  • Individuals who are financing or leasing vehicles may need GAP because their insurance may not pay off the contract
  • Carriers only have to pay up to a car’s Actual Cash Value when your car is totaled. GAP insurance pays the difference
  • Not only does your coverage pay off your contract, it may also provide you with money to buy a new replacement car
  • You should compare different types of GAP to see you’ll get money to put down on a new car before you buy GAP

Insurance safeguards you when you have a covered loss. When you buy a personal car insurance policy, you have peace of mind in knowing that you’ll have an insurer by your side who will protect you in a number of ways.

Not only do car insurance companies pay third-parties when they suffer damages, carriers also help protect policyholders against unfounded claims that are filed by litigious drivers.

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Standard car insurance protects you against a lot of different risks that are present when you drive, but as with all policies, there are limitations. One of the biggest limitations involves how much you’ll receive to replace a car when it’s being financed or leased.

Fortunately, GAP insurance is a supplemental form of protection that you can purchase.

What is GAP insurance and who can buy it?


GAP insurance stands for Guaranteed Auto Protection. Unlike your standard auto insurance, which provides you with third-party liability protection and other optional forms of coverage, GAP only protects you from owing money on a loan or lease after the vehicle is totaled in an auto accident or incident.

In order to buy GAP coverage, you need to be a borrower or a lessee who currently owes a balance on their contract.

Your personal auto policy coverage for physical damage will pay out first and then the GAP overage will kick in. When GAP coverage pays, it will pay the difference between what the car insurance policy paid out and what’s owed on the loan.

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How much will your GAP insurance pay when you file a claim?

How much your supplemental coverage pays is entirely dependent on the type of vehicle that you drive and the balance of your loan.

Your claims adjuster will inspect the car and estimate the value of your car. The insurer will pay you the replacement cost of your car minus the total depreciation charge. This is called the Actual Cash Value.

If you just recently bought your car, the provider that you have GAP through may have to pay more than it would if you were close to paying off your loan. If you put little down, you miss payments, or you’ve had a previous accident that has driven down the value of your car, the limit of the benefit that you’re paying for will fluctuate.

Does your GAP insurance help you cover other costs?

Your GAP insurance won’t pay for repairs to your vehicle, interest charges, late payment fees, warranty costs on your loan, or carry-over balances if you roll over negative equity into your new loan.

While there are a lot of GAP limitations that many people aren’t aware of, some of the specialty insurers that offer GAP products will do more than just pay off your loan.

Some, but not all, GAP insurers will offer their clients money towards a down payment after their GAP claim is settled. The amount that the insurer will offer you to help you put a down payment on a new vehicle ranges, but most of the time it is between $500 and $1000.

This is an incentive to buy GAP through the provider and not through your auto carrier.

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How is your GAP insurance premium determined?

GAP insurance premiums can vary dramatically from provider to provider. A number of different factors can affect how much you’ll pay over the life of your loan for the added protection. If you buy your GAP coverage through the dealer, you can expect to pay more than you would if you went shopping for coverage on your own.

First, the insurer will look at the value of the car and its rate of depreciation. Then, they will look at the amount financed and how long the term is.

The final premiums will be anywhere between $500 and $700 for the life of your loan if you go through a dealer. If you go through your credit union or insurer, you’ll pay installments each month.

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Where can you buy GAP insurance?


You don’t have to buy your GAP coverage through a dealer, but that is an option. Before you give your finance specialist consent to add GAP to your contract, you should price coverage elsewhere.

Many times, credit unions will offer their members the coverage when they are financing the purchase. Other times, car insurance carriers will offer GAP endorsements for newer models. Comparing the premiums for each option is in your best interest.

How do car insurance companies calculate GAP rider premiums?

The standard auto insurance policy doesn’t include GAP coverage. You must add a rider for GAP or a new car replacement rider for your carrier to pay off your loan after a total loss claim. Having the coverage through your insurer makes settling your total loss claim much easier and more convenient.

Instead of looking at values or loan terms, the insurer will charge you around five percent of your comprehensive and collision premiums for the year. If your physical damage coverage costs $700 per year, your GAP coverage will cost $35 per year and around $3 per month.

What You Should Know When You Buy Your New Car

When you bought your last car, you didn’t think about how your down payment could affect you if you ever had a total loss. When you’re buying a new car, you should always

When you’re buying a new car, you should always put at least 20 percent down to avoid having negative equity in your loan. Since cars depreciate by 20 percent in the first year, the down payment will cover the depreciation.

You should always look for special incentives when you’re buying coverage. Consider the cost of GAP first and then find out if the insurer offers money towards a new car. For quotes, use an online comparison tool and add GAP coverage to the quoting tool to see how much GAP coverage costs.

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