Gap Insurance on a Used Car

Do you need gap insurance on a used car? Typical gap insurance is not targeted toward used car buyers, but a loan/lease payoff policy can serve as added protection if you have negative equity on your auto loan.

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UPDATED: May 27, 2022

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Written By: Laura BerryReviewed By: Joel OhmanUPDATED: May 27, 2022Fact Checked

Here's What You Need To Know

  • Guaranteed asset protection, or gap insurance, fills in gaps when a total loss claim is filed and the borrower owes more on the loan than the vehicle is worth.
  • Gap insurance is targeted toward new car buyers, but used car buyers who take out a pricier, longer-term loan should also consider purchasing gap coverage.
  • If you paid for your used car in cash, made a 20 percent down payment, or have a short-term loan, gap insurance is not necessary for your used vehicle.

Many budget-conscious consumers decide to buy used cars instead of new cars because they can avoid high sticker prices and almost instant depreciation. But can you put gap insurance on a used car? How much is gap insurance?

As long as you don’t mind taking in a vehicle that’s been driven by someone else and that’s suffered some inevitable wear and tear, there are some undeniable advantages to buying used.

Can you get gap coverage on a used car? Yes, you usually can, but do you need gap insurance on a used car?

Typically, used cars do not require gap protection. But in some cases, it makes sense for a used-car driver to invest in a loan/lease payoff policy. Understanding your car insurance policy and reading through our guide to gap insurance for older cars can help you weigh the pros and cons.

Compare gap insurance rates instantly by entering your five-digit ZIP code into our FREE online quote comparison tool now, and remember to ask about gap protection for used cars.

What is gap insurance for used cars?

Do you find yourself wondering if you should get gap insurance on your used car? Then you’ve come to the right place. Guaranteed asset protection, or gap insurance, is commonly purchased when you finance or lease a brand new car.

It pays the difference between what is left on your auto loan and the actual cash value of your car in the event of a total loss accident.

It’s easy to understand why gap insurance is worth buying for your new car to fill in some of the gaps that are present in the standard personal car insurance policy form. But what does gap insurance cover on a used car and is it necessary?

You can get gap insurance on a used vehicle? Yes, you can. Although the policy is designed more for new car buyers, you can purchase this coverage for used vehicles as well.

Gap insurance is a good idea if the balance of your loan or lease contract exceeds the market value of your vehicle. If your used car cost less than $3,000 and you pad for it fully in cash, then you do not need gap insurance.

How does gap insurance work after totaling a car? Your insurance company will only pay for the actual cash value of your totaled car.

Check out the following table to see approximately how insurance companies will calculate the actual cash value of your used car.

Used Car Actual Cash Value Calculations
Used Car Deprecation ScenarioRates
Used car cost$10,000
Used car deprecation rate11%
Actual cash value of used car$8,900
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After an accident, you’re still responsible for paying off whatever is left on your loan. If your used car gets totaled before you’ve made your first payment, you’ll still owe $1,100 on your auto loan.

Gap insurance will help pay for what is left on your loan, so you don’t have to pay for it out of pocket. Some companies will cover 25 percent more than the actual cash value of your vehicle.

What companies offer this policy? Is GEICO gap insurance available? What about State Farm gap insurance or Progressive gap insurance? Find out in the table below.

Car Insurance Companies that Offer GAP Insurance Policies
CompanyGAP Insurance Available
AllstateYes
FarmersYes
GeicoNo
Liberty MutualYes
ProgressiveYes
State FarmYes
TravelersYes
USAAYes
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As you can see, other than GEICO, many national car insurance companies offer this service. But when is gap coverage worth it? If you’ll ever owe more on your use car loan than what the vehicle is worth, buying a car gap insurance policy is worth your while.

Where to buy gap insurance coverage gets a little trickier, especially if your goal is obtaining a cheap price. Keep reading to find out when is gap insurance a good deal. Spoiler alert: the dealership often does not offer cheap gap insurance rates.

Before you buy gap insurance shop around to get gap insurance quotes from multiple companies. You can also choose to protect your used car through gap insurance providers, or insurers that primarily only sell gap insurance coverage.

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When should you get gap insurance on a used car?

We hear it all the time. Is gap insurance necessary? Is gap insurance worth buying? Do I have to get gap insurance? Is gap insurance worth it on a used car? These are common questions consumers buying used cars always ask.

Before you can weigh the value of a gap insurance policy, think back to how the insurer will value the used car in question, should it ever be totaled in an accident.

Insurers don’t pay off your loan but they do consider the condition, mileage, features, and local sales information to determine actual cash value. If that number is lower than the loan balance, then without gap insurance, your lender will collect the difference from you.

If your used car is on the pricier side, maybe you needed to take out a longer-term loan.

Just be wary of purchasing gap insurance through the car dealership. Not only is the salesperson going to attempt to haggle an inflated sales price, but they’re also going to try to connect you with someone in the finance department who’ll attempt to add all types of protection that’ll increase the dealerships profits and the professional’s commission.

One of these specific added forms of protection that will raise the principal of a loan is the gap warranty on cars. You might feel pressured to take their gap insurance offer. But, simply put, the dealership is not the best place to buy gap insurance.

The cost will be substantially higher than if you go through an insurance company. Car loan gap insurance is worth it on used cars with long-term loan lengths, but only when you’re getting it for a reasonable rate.

Kevin Hunter explores this in more detail in the following video.

While gap car valuation can save you a lot of money in the event of an accident, dealerships often try to charge you an arm and a leg for coverage that actually should not be that expensive.

Therefore, if you’re financing your used car, it’s wise to look into the cost before you fall into the trap of buying coverage from the dealership and raising your loan payment for little to no benefit.

Can you add gap insurance after you buy a car? The answer is, fortunately, yes. So how much does gap insurance cost on a used car? That depends on where you purchase the policy.

There are many insurance companies that offer gap insurance on used cars for very low rates. You can often buy gap insurance coverage from an insurance provider for around $60 annually.

Should you purchase gap insurance on a new car or leased car?

We’ve already answered your question of do I need gap insurance on a used car. Now, if you’re wondering do I need to buy GAP insurance on a new car, the answer is often yes, but only if you’re financing or leasing the vehicle.

Getting gap insurance on a new car purchase makes sense because you’ll likely owe more on your loan than your vehicle is worth.

Imagine your new car gets totaled and you still owe more on the loan than your vehicle’s actual cash value. This type of car value protection insurance will prevent you from paying for the rest of your loan out of pocket.

According to the Insurance Information Institute, if you’re leasing a vehicle, gap insurance is needed to fulfill your leasing obligations.

Remember, you can buy gap insurance after you purchase a car. To those wondering whether or not they should get gap insurance with a new car or leased car, you now know why the answer is a qualified yes.

How long does gap coverage last on a used car?

We’ve answered your question of if you need gap coverage, but how long is gap insurance good for and how long should you keep it? You might be asking yourself, can I take gap insurance off my car when I no longer need it?

Once you no longer owe more on your loan than your car is worth, you no longer should pay for gap insurance.

Can you drop gap insurance coverage when you no longer need it? Yes, you can. Good gap insurance companies will understand that the coverage is temporary.

Plan ahead and ask about a gap insurance refund before making a purchase.

Do you really need gap insurance coverage on a used car?

What can gap insurance be used for? Gap coverage is most commonly marketed to new car buyers. This is because a new car will drop in value virtually instantly after you sign the bill of sale.

According to CarFax, your car will depreciate by 12 percent in value in the second year of ownership. In the third year, it depreciates another 11 percent.

Insurance providers only pay out the actual cash value of your vehicle after it has been totaled in an accident. Depreciation is used by insurance companies when calculating the actual cash value of your used car.

Learn more about how actual cash value is determined by watching the video below.

The term length for new car auto loans usually exceeds 3 years, which can leave you with a substantial outstanding balance in the event the new car is ever totaled.

However, used car buyers usually do not take out long-term car loans. Here are some scenarios when used car buyers need gap coverage:

  • New car purchases with less than a 20 percent down payment.
  • Loan term of 60 months or longer.
  • Transferred negative equity from trade to the new vehicle loan.
  • The vehicle you purchase depreciates at a faster rate because of limited appeal.

At this point, you might think gap insurance isn’t a cost you’ll take on when you’re buying a used model. While it’s not always an added form of protection that’s marketed to used car buyers, it could still protect your financial situation in some scenarios.

It’s important that you remember that if you’re buying a newer used vehicle, it still depreciates rapidly.

Depreciation adds up quickly if you have a total loss and you don’t have that added layer of protection that fills in the gap.

It’s especially helpful when you have negative equity in your loan, you have a high APR, or you don’t make a large down payment.

If you’re paying cash for the car, you don’t need gap coverage at all. It’s also fair to say that there’s really no need for it if you put down 20 percent because this will cover that gap.

When buying the coverage through a lender, they’ll add between $500 and $700 to your loan and you’ll pay interest on that figure for 48, 60, or even 72 months.

Since this can quickly add up, it might make sense not to have gap insurance if you could cover the difference between value and what you owe with your own money.

Where to buy gap insurance for a used car?

Where can you buy gap insurance on a used car? If you’re buying a used car and financing the loan, you can ask the loan processor if they offer any third-party gap insurance protection that can be paid through the loan, but you already know this is not usually an affordable option.

In fact, most stand-alone gap insurance options will cost you more than if you simply go through your car insurance company. Before you buy gap at the dealership, it could benefit you to price the cost for replacement car coverage through an insurer.

See if your used car qualifies for an endorsement through your insurer. Sometimes, this is only available to newer cars with a low amount of mileage.

We always recommend doing some gap insurance price comparisons before purchasing from any used car gap insurance providers. Taking the time to research and compare rates will always lead to the most savings.

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Gap Insurance on a Used Car: The Bottom Line

Do you need gap insurance on a used vehicle, the answer is no. But if you’re wondering whether or not you can get gap insurance on a used car on your own, the answer is yes.

You now understand the ins and outs of what is gap insurance when buying a car. Next time you hear a friend ask, “Why do I need gap insurance?”, send them our way. In the meantime, if you are searching for coverage, feel free to use our quote tool.

Ready to find the best place to get gap insurance? Enter your five-digit ZIP code into our FREE tool below to start comparing car insurance rates now.

Editorial Guidelines: We are a free online resource for anyone interested in learning more about auto insurance. Our goal is to be an objective, third-party resource for everything auto insurance related. We update our site regularly, and all content is reviewed by auto insurance experts.

A former insurance producer, Laura understands that education is key when it comes to buying insurance. She has happily dedicated many hours to helping her clients understand how the insurance marketplace works so they can find the best car, home, and life insurance products for their needs.

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Written by Laura Berry
Former Insurance Agent Laura Berry

Joel Ohman is the CEO of a private equity backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He has an MBA from the University of South Florida. Jo...

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Reviewed by Joel Ohman
Founder & CFP® Joel Ohman

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