New vehicles typically lose value fastest early on, creating a risk that a recent buyer’s loan balance can exceed the car’s market value after a total loss. Current market analyses indicate a typical first‑year value drop around 10–15% for mainstream models, with wide variation by segment; EVs and some luxury vehicles tend to fall faster, while popular trucks and certain SUVs retain value better ISeeCars. Over five years, average depreciation is in the high‑30% range marketwide ISeeCars, and used‑vehicle prices softened through 2024–2025 versus the 2021–2022 peak, reinforcing more typical depreciation patterns Manheim Used Vehicle Value Index. Depreciation remains one of the largest ownership costs over five years AAA Your Driving Costs.
Guaranteed asset protection coverage, commonly known as GAP insurance, protects owners from paying off car loans that exceed the value of the car. It bridges the difference between your insurer’s actual cash value (ACV) payout and your remaining loan or lease balance after a total loss, subject to product limits. Many insurer add‑ons—often called “loan/lease payoff” endorsements—cap the payout at a percentage of ACV (commonly up to 25%) Progressive.
If a new or leased car is totaled and the owner is stuck with a remaining balance after the auto insurance ACV payment, GAP coverage can pay the shortfall up to policy or waiver limits. On leases, GAP is commonly required and often already included as a GAP waiver in the lease contract—confirm terms to avoid paying for duplicate coverage Insurance Information Institute Progressive Edmunds.
Do you need GAP Insurance?
For leases, GAP is typically required or already included by the lessor; always verify the lease’s GAP waiver clause Insurance Information Institute. For financed purchases, consumer and insurance authorities recommend considering GAP when you made a small down payment, have a long‑term loan (60 months or more), or your loan‑to‑value (LTV) is high relative to the car’s expected value NAIC Consumer Advisory Insurance Information Institute.
Negative equity risk has risen as used‑vehicle values normalized in 2024–2025 and monthly payments remained elevated, leaving more borrowers underwater early in their terms Edmunds Manheim Index. With typical first‑year depreciation near 10–15% for many models ISeeCars, GAP helps protect against owing thousands after a total loss before the loan has meaningfully amortized.
Here are examples of times when GAP insurance is important:
- Can’t cover gap out-of-pocket: the difference between the loan amount and the car’s actual cash value is too large to cover out-of-pocket, especially if policy limits apply (many insurer endorsements cap benefits at up to 25% of ACV) Progressive Bankrate.
- Small down payment: the down payment is small compared to the overall amount of the car loan (e.g., <20% down or rolled‑in taxes/fees), which raises LTV and extends the time you may be upside‑down NAIC Insurance Information Institute.
- Long-term loan: The length of the loan is long (60+ months)—and especially 72–84 months—which slows principal paydown relative to early‑year depreciation, keeping you upside‑down longer Experian State of the Automotive Finance Market.
- Car with fast depreciation: Some makes and models lose value very fast (e.g., many EVs or certain luxury segments may drop 15–25% in year one), while popular trucks/SUVs often retain value better; check model‑specific residuals before you buy ISeeCars ISeeCars J.D. Power ALG Residual Value Awards.
What is the Cost of GAP Insurance?
The cost of GAP depends heavily on where it’s purchased. Directly from an auto insurer as a “loan/lease payoff” endorsement, it commonly runs about $20–$60 per year (roughly $5–$10 per month), though pricing varies by insurer, state, and profile Bankrate NerdWallet USAA. At dealerships, GAP is typically a one‑time fee that’s often $500–$1,000 and frequently financed into the loan (increasing total cost via interest) Edmunds Bankrate. Credit unions and banks usually price in between (often several hundred dollars) Edmunds.
Dealerships usually offer GAP insurance to new car owners at the time of purchase, but the insurance will probably be offered at a higher rate than if purchased through an auto insurer. Dealer or lender add‑ons are commonly financed and may be refundable pro‑rata if you sell, refinance, or pay off early—know how refunds work and get the terms in writing CFPB Edmunds.
If the new car owner already maintains an active auto insurance policy, then checking with the policy provider will probably be a cheaper way to purchase GAP insurance. Ask for the exact premium and whether the endorsement has a payout cap (often up to 25% of ACV) and how it treats your deductible; availability generally requires collision and comprehensive coverage Bankrate Progressive.
According to the Insurance Information Institute, lessees should first confirm whether GAP is already included in their lease. There isn’t a single national “average” cost—insurers often charge a modest additional premium (some market it at about $5 per month), while dealer add‑ons are frequently several hundred dollars and financed; independent estimates place insurer endorsements around ~$60–$120 per year Progressive Bankrate ValuePenguin.
Frequently Asked Questions
Why is GAP Insurance Cheap?
GAP can be relatively inexpensive when added to an existing auto policy because insurer endorsements avoid dealer F&I markups and are priced like other policy add‑ons—often about $20–$60 per year—though rates vary by state and insurer Bankrate NerdWallet. Confirm important limitations: many insurer offerings cap payouts at up to 25% of ACV and may not cover your primary policy deductible Progressive. If your priority is replacing the vehicle rather than clearing the loan, some insurers offer New Car Replacement endorsements that can put you in a brand‑new car after a total loss when eligibility is met Travelers.
Is GAP Insurance worth it on a used car?
It depends on your loan‑to‑value and term. Used cars generally depreciate more slowly than new cars, which can shorten the negative‑equity window—but long terms, small down payments, or rolling prior negative equity into the new loan can still leave you exposed. Consider GAP if your LTV is high or your term is 60+ months; if leasing, many contracts already include a GAP waiver—confirm before buying coverage NAIC Insurance Information Institute.
The Insurance Information Institute estimates that new cars lose about 20 percent of their value in the first year of ownership is an older rule of thumb often cited in consumer materials. Recent market data shows a more typical first‑year drop in the 10–15% range for many mainstream models, with EVs and some luxury vehicles depreciating faster and popular trucks/SUVs slower ISeeCars.
What is the average cost for GAP insurance?
The cost of GAP insurance ranges significantly by channel and profile—there isn’t a single national “average.” If GAP insurance is purchased from a dealership with a car loan, then it can range from $500 to $700, which aligns with—but may understate—the broader $500–$1,000 one‑time range many sources report for dealer‑sold waivers Edmunds Bankrate. If the GAP insurance is purchased as an endorsement in an auto insurance policy, insurers often charge roughly $5–$10 per month (~$60–$120/year), though limits like a 25% of ACV cap commonly apply NerdWallet Progressive ValuePenguin. If you cancel a dealer or lender GAP add‑on early, you may be entitled to a pro‑rata refund of the unearned amount—ask about refund rights and how to claim them CFPB.
