Gap insurance
Updated for plan year 2026
In plain terms
Gap insurance covers the 'gap' between your loan or lease balance and your car's actual cash value when it's totaled or stolen. Standard collision and comprehensive only pay the depreciated value of the car, so if you owe more than that, gap insurance pays the shortfall to the lender. It protects the loan balance, not the car itself.
A plain example
You owe $28,000 on a new car that's totaled when it's worth $22,000. Collision pays the $22,000 value, leaving you owing the lender $6,000 on a car you no longer have. Gap insurance pays that $6,000.
Why it matters
For the first few years of a new-car loan or a lease, you can owe more than the car is worth, being 'upside down.' Without gap insurance, a total loss during that window leaves you paying a lender for a car that's gone. It's cheap protection exactly when you're most exposed.
A common point of confusion
People keep paying for gap long after they need it. Once your loan balance drops below the car's value, standard coverage would fully pay off the loan, and gap becomes wasted money you can cancel, sometimes for a partial refund.