What is Gap Insurance and Do I Need It?

Sometimes bad luck happens. A hail storm hits. Somebody runs a red light. You get too close to a barricade in a construction zone and BOOM, your vehicle is totaled! You call your insurance and they give you a settlement amount, but what do you do, it is not enough to pay off your loan! This is where Gap Insurance comes in. Gap insurance makes sure that you don't get stuck paying off the loan because your insurance company didn't cover it.

Insurance companies replace market value on your vehicle in the event of a total loss, but pay no attention to what you may owe. This leaves many customers paying for vehicle they no longer can drive. Therefore GAP insurance is one of the wisest purchases a customer can make to protect their investment and their credit. They pay the remainder of your loan balance so you don't have to, including your deductible.

Leasing a Vehicle and GAP Insurance

Most leases include gap insurance as part of the lease. This is not all leases but always check with the dealership.

When Do I Need GAP Insurance the Most?

  • If trading in a vehicle with Negative Equity
  • If you are putting less than 20% down
  • If you drive more than 12,000 miles per year
  • If you have financed your car for more than a 4 year loan
  • If you have a higher than normal interest rate due to past credit history or high loan to value
  • If market fluctuations cause your vehicle to have a high rate of depreciation
  • If you cannot afford to be without a car for a long period of time: If insurance doesn't pay off your loan many lenders will not help you get a new car until that one is paid in full!

7 reasons to buy GAP from a dealership

From Automotive News September 28, 2011 by Donna Harris Dealer consultant Ron Reahard, president of Reahard & Associates of Soddy Daisy, Tenn., gives seven reasons to tell customers why they should buy GAP from the dealership:

 1. No deductible. Under the auto insurer's GAP policy, consumers must pay a deductible when they file a claim. The dealership's GAP policy has no deductible.

2. No impact on insurance rates. The more claims consumers have against their auto insurance policies, the more the insurer raises their rates. Claims against dealership GAP policies do not affect auto insurance premiums.

3. No risk of cancellation. Auto insurers can cancel policies if consumers file one too many claims. Not true with claims against dealership GAP policies.

4. Freedom to switch insurers. If consumers buy from the dealership, they can switch auto insurers without losing GAP coverage. But if consumers want to maintain their insurer's GAP coverage, they must stick with that insurer over the term of the vehicle loan. "In most states, GAP is only available when you take a loan on a new vehicle," Reahard says. "It's not available on the car you already own."

5. Upside-down trade-ins. Often, a dealership will roll the amount the customer still owes on a trade-in into the loan on a new vehicle. If the new vehicle is totaled or stolen, the dealership's GAP policy pays the difference between cash value of the vehicle and the balance of the loan - including the negative equity on the trade-in. But sometimes insurance companies don't cover the negative equity on the trade-in in GAP coverage, Reahard says.

6. Higher coverage limits. Check the insurer's coverage against the dealership's coverage. Often, the insurer caps coverage at a lower amount, Reahard says.

7. Replacement vehicle. If consumers get GAP coverage from the insurer and the vehicle is totaled, the insurance company is more likely to fix the vehicle than to total it.

Says Reahard: "That's why even some insurance agents don't get GAP from their own company."


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  1. Empire Littleton Nissan

    5067 S Wadsworth Blvd
    Littleton, CO 80123

    • Sales: 303-904-7700
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