How To Best Afford Gap Insurance
Gap Insurance: Dealer Add-On vs. Auto Policy
Buying a new car is exciting but risky. It depreciates immediately, and if totaled or stolen, standard insurance pays the car's actual cash value, not your loan or lease balance.
Gap Insurance (Guaranteed Asset Protection) covers the difference between your vehicle's value and what you still owe.
Why You’ll Hear About Gap Insurance at the Dealership
When you’re finalizing your purchase, the finance manager often offers Gap Insurance as an add-on.
Convenience: You can roll it right into your financing paperwork.
Cost: This convenience comes at a price. Dealers typically charge $400– $900 as a one-time fee, and because it’s financed, you’ll also pay interest on it.
Commitment: Once it’s bundled into your loan, you’re locked into that cost even if your balance drops faster than expected.
If you buy a $30,000 SUV, total it a year later when it’s worth $24,000 but still owe $28,000, dealer Gap Insurance covers the $4,000 shortfall which is useful but not always cost-effective.
Gap Insurance Through Your Auto Insurance Policy
What many car buyers don’t realize is that they can add Gap Insurance directly to their auto insurance policy.
Lower Cost: Most carriers charge just $20–$40 per year for the same protection.
Flexibility: You can add or remove the coverage as your loan balance changes.
Same Protection: It covers the same difference between your loan and your vehicle’s actual cash value.
Adding Gap Insurance to your policy would still cover the $4,000 gap but cost far less.
Which Option Is Best?
If you value convenience and don't mind higher cost, buy from the dealer. For long-term savings, add GAP insurance to your auto policy.
