How Do I know If I Have Gap Insurance? – InvestingFuse

How do I know if I have gap insurance? This is a fair question faced by many people who have financed or leased a vehicle. People tend to forget about gap insurance as soon as they drive their car off the lot. However, if you happen to get in a serious accident and completely total your car, gap insurance is extremely important to have.


  • Gap insurance covers the difference between what your car is worth and what you owe on it if you happen to total or damage your vehicle
  • You can check to see if you have gap insurance inside your current auto insurance policy or in the terms of your finance or lease agreement
  • You can purchase gap insurance through your car dealer, as well as through your insurance company 

What is Gap Insurance?

When you purchase or lease a new vehicle, it starts to depreciate in value the minute your leave the car lot. This is one of the reasons why purchasing a new car is a terrible investment. Most vehicles lose up to 20% in value just in the first year. Your auto insurance policy covers the depreciation value of your vehicle. If you happen to get in an accident, your auto insurance will pay the current market value of your vehicle less your deductible. 

If you financed a vehicle and only put down a very small deposit, the depreciation in the early years can outpace your loan amount, especially if you have a high-interest rate. What this means is that you owe more on your car than it’s currently worth. This is where gap insurance comes in handy.

gap insurance
gap insurance

If you happen to get in a car accident where you have totaled your vehicle, your gap insurance will cover the difference between what your vehicle is worth and what your outstanding loan amount is. Most people finance their vehicles, and gap insurance is recommended. If you purchased your car in cash or financed more than 20% of the purchase price, you really don’t need gap insurance.

How Do I Know If I Have Gap Insurance On My Car?

When you finance your vehicle and go through all the paperwork, your car dealer will try and sell you gap insurance. There are two places where you can check if you have gap insurance. One is your current auto insurance policy and your financing or lease agreement.

It’s worth noting that gap insurance purchased through a car dealership will always be more expensive. The dealer simply gets a gap insurance policy for you and applies their own markup. If you don’t find evidence that you have gap insurance from your current policy and loan agreement, you can contact the dealer and have them check. 

Does Gap Insurance Different Between a Lease and a Purchase?

There are a few differences in gap insurance when it comes to leasing versus purchasing a vehicle. When you lease a vehicle, gap insurance is traditionally built into the lease agreement without a separate charge. It is generally a requirement by the dealer to maintain gap insurance throughout your lease period.

When it comes to financing a vehicle, gap insurance is not a requirement. It’s not built into the finance agreement and it’s purchased separately. Certain auto lenders may require you to hold gap insurance if you have poor credit. In addition to this, the cost of gap insurance tends to be higher for vehicles that are financed versus vehicles that are leased. However, the difference is small.

How Do I Know If I Need Gap Insurance?

The majority of people don’t fully understand how gap insurance works. This is because it’s poorly explained by the majority of car dealers. For dealers, it’s an additional sale they make on top of the purchase price to increase their margins.

However, not all car buyers need to have it. It’s recommended to have gap insurance if there is a “gap” between what you owe on your car and what the car is worth. Below are general rules to follow about getting gap insurance.

  • If you put down less than 20% to purchase a new vehicle
  • Financing a vehicle for over 5 years
  • Financing a vehicle that depreciates quickly  

Important Note: Not all vehicles depreciate at the same rate. Some vehicles have a much faster depreciation rate than others. Check out vehicles with faster depreciation to get a better idea.

As an example, if your car is currently worth $20,000 but you owe $25,000, you should have gap insurance. In the case of an accident, your gap insurance will cover that $5,000, less your deductible, that your regular auto insurance won’t.

Can I Get Gap Insurance After Buying a Car?

Yes, you can. However, it’s important to note that there is a time frame to purchase gap insurance. Gap insurance must be purchased within 30 days of a new car purchase. This 30-day grace period is only allowed for vehicles that have never had a title, which tends to be cars.

The best option is to call your auto insurance company and ask them to add it to your current policy. Your insurance agent should tell you what your options are and how much gap insurance will cost to get added to your current policy.

The Risks Of Not Having Gap Insurance

Not having gap insurance can carry its own set of risks. It’s a supplemental insurance policy if there’s a gap between what you owe and what your car is worth. If there is ever an instance in which you owe more on your car than it’s worth, gap insurance is a nice comfort to have.

Important Note: If you pay off your car much earlier than expected, you may qualify for a gap insurance refund.

If you don’t have gap insurance coverage you stand to lose out on money if your car is ever totaled, stolen, or vandalized.


To reiterate, if you’re not sure whether or not you have gap insurance, first check your current auto insurance policy. If you don’t find evidence of it there, check your financing or lease agreement. In any case, you should call the dealership where you purchased your vehicle and check with them.


Do I need Gap Insurance If I have Full Coverage?

If you owe more on your car than it’s worth, it’s suggested you get gap insurance. If you have comprehensive coverage, they will cover the actual cash value of your car, not what you owe on it. Once your loan amount is well below the coverage amount of your vehicle, you can cancel your gap insurance.