Gap insurance, short for guaranteed asset protection, is an optional coverage that pays the difference between what your car is currently worth and what you still owe on your loan or lease if the car is totaled or stolen.
According to the the Insurance Information Institute (III), most new cars lose roughly 20% of their value within the first year of ownership. That means many drivers owe more on their loan than the car is worth during the early years of financing, which is a situation called having “negative equity.” A 2025 Edmunds report found that almost 30% of trade-ins toward new-car purchases had negative equity, with the average amount owed reaching more than $7,200. Gap insurance protects you from being stuck with that bill if the worst happens.
Jerry has helped 145,445 drivers get car insurance in the last year, including drivers who need gap insurance. Here’s what to know about how gap insurance works.
How gap insurance works: An example
🚗 Scenario
You’re in a wreck and your car is worth $15,500, but you still owe the lender $18,000.
| Financial breakdown | Amount |
|---|---|
| Your remaining loan balance | $18,000 |
| Car’s current market value | $15,500 |
| Your collision deductible | $500 |
| Insurance payout to lender | $15,000 |
| Gap insurance covers | $2,500 |
Gap coverage won’t pay your deductible in most cases. You’ll still pay the $500 deductible, but gap insurance eliminates the $2,500 you’d have to come up with out of pocket.
The Jerry difference: Use the Jerry app to quickly compare car insurance quotes from companies that offer gap insurance to be sure you’re fully covered.
Jerry pulls up to 20 quotes from top rated carriers.
What gap insurance does and doesn’t cover
Gap insurance is designed specifically for total loss situations. Here’s a quick breakdown of what it covers and what falls outside its scope.
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Remaining loan or lease balance after a total loss payout.
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The difference between market value and loan payoff if your car is stolen and not recovered.
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Your collision or comprehensive deductible.
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Late or missed loan/lease payments.
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Down payment toward your next car.
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Mechanical repairs, maintenance, or extended warranties.
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Rental car costs while your claim is processed
Why depreciation makes gap insurance important
Depreciation, which is the loss of your car’s value over time, is the main reason gap insurance exists. According to AAA’s 2025 Your Driving Costs study, the average new vehicle loses more than $4,300 in value per year. That means your car’s value drops faster than most loan balances in the early years of ownership.
Meanwhile, total loss claims are also becoming more common. CCC Intelligent Solutions reported that through April 2025, over 20% of all auto insurance claims were declared total losses, which was an increase from the previous year. And over 70% of total loss valuations in 2024 involved vehicles seven years or older.
If your financed vehicle is totaled during the period when your loan balance exceeds its market value, gap insurance is the coverage that prevents an out-of-pocket loss.
Do you need gap insurance?
Not everyone needs the coverage. Here’s a quick reference guide if you financed your car and aren’t sure where you stand.
✅ Consider gap insurance if you have:
- A down payment less than 20%.
- Loan term of 60 months or more.
- Rolled loan debt into your new auto loan.
- A car that loses value quickly.
❌ Skip gap insurance if:
- Your car’s value is greater than your loan balance.
- Gap is already included in your loan or lease contract.
Learn more: The 6 main types of car insurance
What gap insurance costs and where to buy it
Gap insurance typically costs between $20 and $100 per year when it’s added to your existing car insurance policy, according to the Insurance Information Institute. But buying through a dealership or lender can cost several hundred dollars more, and you may pay interest on top of it since the price gets rolled into your auto loan.
Jerry recommends: Avoid getting gap insurance through your car loan. Instead, shop for car insurance quotes through the Jerry app and we’ll show you available quotes for coverage with gap insurance in minutes.
Get gap insurance quotes through Jerry
When you shop for car insurance, compare whether gap is available and how it is priced. You can get quotes through Jerry, then add or remove gap as your balance changes.
Let Jerry re-shop quotes for you at renewal or after major changes like paying down the loan or refinancing.
How long to keep gap insurance
Most drivers should keep gap insurance until their loan balance drops below their car’s current market value, typically within the first two to four years of a loan, depending on the down payment and loan term.
Gap insurance serves a temporary purpose during the early financing period. Here’s when to evaluate your coverage.
Remove gap insurance if:
📊 Your payoff amount drops below current market value.
✔️ You pay off the loan early.
💵 You have enough savings to cover the difference between your loan and car’s value.
Jerry recommends: Review your gap insurance every six months by comparing your loan balance to current market value using Jerry’s app.
Similar coverage to gap insurance
Three coverage options provide similar protection to gap with different approaches. New and better car replacement are typically only available for vehicles less than a few model years old, but offer bigger payouts in the same scenarios.
Jerry recommends: Ask a Jerry agent before choosing a different coverage since these alternatives may not provide the same protection as standard gap insurance, or they may cost more.
It only takes 2 minutes to sign up at Jerry.
FAQ
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Is gap insurance worth the cost?
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Does gap insurance cover my deductible?
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Can I add gap insurance after buying my car?
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Can I cancel gap insurance and get money back?
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What does GAP stand for in gap insurance?
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Is gap insurance required for a lease?
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What is the difference between gap insurance and loan/lease payoff coverage?
Methodology
Data included in this analysis comes from policies that Jerry has quoted within the last 6 months for drivers with a clean record and that have full coverage, unless stated otherwise. Data related to violations, accidents or credit scores pull from quote data from the last 18 months. Jerry services 48 states and offers a range of insurance companies to choose from. Read Jerry’s car insurance data methodology to learn more about how we collect, verify and share real-world insurance data.
Ben Moore is a writer and editor at Jerry and an auto insurance expert. He previously worked as a writer, editor and content strategist on NerdWallet’s auto insurance team for five years. His work has been published in The Associated Press, Washington Post, Chicago Sun-Times, MarketWatch, Nasdaq and Yahoo News. He also served as a NerdWallet spokesperson, with appearances on local broadcast television and quotes in Martha Stewart and Real Simple magazine.
Ben has an extensive background in digital marketing, working on affiliate and programmatic advertising campaigns for brands like Cabela’s, H&R Block and Sears. He holds a bachelors degree in marketing from Olivet Nazarene University.
