Gap Coverage: Who Needs it and Why

By: Mary Steeb, CISR, CPIW

Mary loves to explain insurance in terms that her customers can understand so that they can make informed decisions about their coverage.

pencil drawing a bridge between two cliffs

Gap coverage is a really smart type of insurance to have. And yet, many drivers don’t understand exactly what it’s for, or how to get it. If you’re in the market to buy a new or used car, here are a few things you should know:

What Is Gap Coverage?

If you get into an accident and your car is totaled, your carrier will reimburse you for the current value of your car. Unfortunately, many people owe more on their car loans or financing agreements than what their cars are worth. Gap coverage is a type of insurance designed to cover the gap between how much your insurer will pay and how much you owe your lender.  And that gap can grow at a surprising rate… Check out this infographic from It shows how a new car purchased for around $30,000 loses $2,500 of its value just one minute after leaving the lot. After a year, that same car might be worth a little over $24,000. Depending on the terms of the loan, many buyers won’t have covered $6,000 in principal during that first year. In other words, they would have a gap.

Where Can I Buy Gap Coverage?

You’re ready to buy a car. Great! Car dealers will conveniently offer you gap coverage (along with warranty options and upholstery guards) as they’re zipping through that massive stack of paperwork in the back office. So should you buy it from them? No! Your local insurance agency can secure gap coverage for much, much less–usually somewhere around $30 per year, as compared to the hundreds of dollars a dealer might charge.

My Car Insurance Already Seems High. What’s Up with That?

A lot of customers call to ask why their MA car insurance is higher after buying a new car. There are many factors that determine premiums, but one general point to note is that newer cars (with high-tech safety systems and computerized features) have higher vehicle-repair costs. This tends to drive rates up. Even still, we think gap coverage is protection worth adding. If you have any questions about insuring your new or used car, please don’t hesitate to contact us at 508.339.2951.