Do I Need Gap Insurance for my New Car?

Maybe, but only if your car is worth less than what you owe on your car loan. Here are some common questions about gap insurance.

What is gap insurance?

Gap insurance covers the difference between what you owe on your car and what it’s worth. That “gap” can be thousands of dollars if your down payment was less than 20 percent or your loan is financed for 60 months or more.

Your auto dealer or bank may try to sell you gap insurance when you buy your car. But check with your insurance agent. They may have a better deal.

How could I owe more than what my car is worth?

New cars lose value quickly. As soon as you drive it off the lot, it’s a used car. If your car is stolen or totaled, your auto insurance will pay you what the car is worth – not what you originally paid, or how much you still owe.

How long do I need gap insurance?

You should cancel the policy when you owe less on your loan than what your vehicle is worth. This usually happens after about two years. Compare how much you owe on your loan with online guides to car values.

If you pay off your loan early or sell the vehicle, cancel the policy. You need to start saving money for your next car!