How to decide if gap coverage is right for you

What is gap insurance?

Gap insurance pays for the “gap” between what you owe on your car and what its worth if it’s totaled in a covered accident, theft or other loss. Some providers—including Progressive—call it loan/lease payoff coverage.

It’s easy to decide if you need it
A quick comparison between what you owe on your vehicle (info you can get from your lender) and what your vehicle is actually worth will help you decide if gap is for you. (Tools like the “ What’s my car worth?” feature on the Kelley Blue Book site can help you with the latter.)

So ask:

Do you owe more than the vehicle is currently worth (commonly referred to as being “upside-down” on the loan)?

If so, and if the car were totaled, could you pay the difference between what you owe and what your vehicle’s actually worth today?

If the answer to that second question is no, then buying gap insurance is probably a solid choice.

What does gap insurance cover?
Gap covers the difference between your vehicle’s value and what you owe.

So, let’s say you get into an accident and your insurance company declares the car a total loss. If you have gap insurance, the scenario would play out like this:

$28,000—Amount you owe your lender (principal and interest)


$24,500—Amount your insurance company pays, based on what your vehicle is currently worth … which the insurance company calls the “actual cash value” (full value is $25,000 but you’re responsible for your collision deductible which, in this instance, is $500)


$3,500—Amount you still owe your lender after the insurance payout


$3,500—Additional amount your insurance company will pay if you have gap insurance


$0—Amount you owe your lender after gap insurance is applied

Know that this is a simplified example and other terms could apply. For instance, Progressive’s Loan/Lease Payoff coverage will pay up to 25 percent of the actual cash value of your vehicle at the time of the loss. Still, that might easily make the coverage well worth a few extra dollars of premium.

Where do you get it?
You can buy gap insurance a couple of ways: through your car dealer, lender, or your auto insurance company.

The types of losses covered vary depending on the company providing the coverage, so be sure to clarify what’s covered before making your decision. And, be aware that if you’re leasing a vehicle, leasing companies often include gap coverage in their contracts automatically.

The cost can vary, too. While most dealers and lenders offer the coverage, it may be cheaper to buy it through your insurance company. Plus, you get the benefit of having it billed as part of your total insurance premium, and generally speaking, the claims process is smoother as you’re working with just one company and one claims representative in the event of a loss.

A couple more things to note about gap insurance:

  • To buy the coverage, your lender must be a financial institution rather than an individual and your policy must have comprehensive and collision for the vehicle.
  • To use the coverage, your claim must be covered under comprehensive or collision and your vehicle must be determined a total loss.

To learn more about Progressive’s Loan/Lease Payoff coverage, call us at 1-800-776-4737, or talk to a local agent.

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