Do I Need Gap Insurance?
Answer five quick questions below to get a personalised recommendation. You can also go straight to the gap exposure calculator if you have your loan and vehicle numbers handy.
Your Situation
1. Do you currently have an outstanding auto loan or lease?
2. How much did you put down when purchasing or financing?
3. What is your loan term?
4. Did you roll any negative equity from a trade-in into this loan?
5. Is the vehicle new or a high-depreciation model (luxury, some EVs)?
The Key Rule of Thumb
Gap insurance is worth considering whenever your loan balance exceeds your vehicle's Actual Cash Value (ACV). The most reliable way to check is to use the gap exposure calculator: enter your current loan payoff amount and your vehicle's current market value. If the result is positive, a gap exists.
Situations where gap coverage is most commonly valuable:
- New vehicle financed with less than 20% down
- Loan term of 60, 72, or 84 months
- Negative equity rolled in from a trade-in
- Leased vehicle (most lease agreements require gap coverage; many include it automatically)
- Vehicle models with above-average depreciation rates
Situations where gap coverage is less likely to be needed:
- Loan balance already below vehicle ACV (use the calculator to check)
- 20%+ down payment on a standard-depreciation used vehicle
- Loan term of 36 months or under with standard payments
- Vehicle with strong residual value (certain trucks, SUVs)
See also: Gap insurance calculator | How much does gap insurance cost? | Gap insurance on a used car | Gap insurance refund calculator
Frequently Asked Questions
Gap insurance is not required by any state law for private passenger vehicles. However, some lenders require it as a loan condition, particularly on loans with very low down payments or high loan-to-value ratios. Check your loan agreement or ask your lender directly.
Standard gap insurance does not cover your comprehensive/collision deductible. Some gap products include a deductible waiver as an additional benefit — check your policy. If yours does not include it, the deductible comes out of your own pocket.
No. Gap insurance only applies after a total loss event — your vehicle is declared a total loss due to an accident, theft, flood, fire, or similar covered peril under your primary auto insurance. It does not cover mechanical failures, engine problems, or wear-and-tear.
Gap insurance pays the difference between what your primary insurer pays (the ACV) and your outstanding loan balance at the time of the total loss. It does not cover any overdue payments, late fees, or the portion of your balance attributable to rolled-in negative equity beyond the original vehicle value in some policies — read your gap agreement carefully.