How Long Does Gap Insurance Last?
Gap insurance can last as long as you have an outstanding car loan, but you won’t usually need it for the entire term length of the loan—learn more here!
Written by Drew Waterstreet
Reviewed by Amy Bobinger
Gap insurance can last as long as you have an outstanding
car loan
, which typically ranges from 24 to 60 months—or sometimes even longer. But the more important question is, how long should you keep gap insurance? Since gap insurance (guaranteed asset protection) covers the difference between the amount you owe the lender and the actual cash value of your car, there comes a time when it is no longer necessary. Let’s find out when that is!
How long does gap insurance last?
You can have gap insurance as long as you have a car loan that you are still making payments on. The typical length car loan is between 24 and 60 months, but some lenders are starting to offer loans up to 72 and 84 months.
Can you add gap insurance to your car insurance policy at any time?
Gap insurance policies are available either through your car insurance provider or through the car dealership you purchased your new vehicle at. The process differs for each, so let’s take a closer look:
Gap insurance | Car insurance provider | Car dealership |
|---|---|---|
Can you add gap insurance to your car insurance policy at any time? | Add it at any time. | Bundled into your car loan when you purchase the vehicle. |
Remove it at any time. | Remove it any time, but they may be less willing to let you go—because they may be making interest on your gap insurance | |
$3 to $60 monthly premium. | $400 to $700 annual lump sum added to the car loan, so you may also have to pay interest. |
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What does gap insurance cover?
When you buy a new car, it automatically loses about 10% of its value in depreciation the second you drive it off the dealership lot. It can then lose another 20% after the first year of ownership.
Since depreciation occurs so swiftly, you may end upside-down (also known as having negative equity) on your loan balance: meaning your loan is worth more than the car itself.
Unless you put down a hefty down payment or make sizeable monthly loan payments, there’s a good chance you’ll be in this position for the first couple of years of the loan term.
Fortunately, gap insurance almost acts like a warranty against depreciation—thank goodness! It will cover the difference between your loan amount and the vehicle’s actual cash value (ACV). Let us show you how filing an insurance claim would go.
How does gap insurance work?
Hopefully this is just a hypothetical, but suppose you are in a car accident and your vehicle is determined to be a total loss: meaning the repairs are more expensive than the car’s value.
In that case, your insurance claim will leverage your
comprehensive coverage
or collision coverage
to reimburse you for the depreciated value of the vehicle (see Kelley Blue Book for estimates). But what happens when that insurance payout isn’t enough to cover your outstanding car loan? Without gap insurance, you’ll have to finish making out-of-pocket payments on a loan for a car that you can no longer drive. But, with gap insurance, your provider will be there to cover the gap—as the name implies.
When is gap insurance coverage a good idea?
So when is gap insurance worth it? Let’s look at situations when adding it to your insurance policy makes sense:
- When your loan terms are greater than 60 months: Loans with longer payback periods are more vulnerable to going upside-down.
- When your down payment was too small: Depreciation can surpass a small down payment in no time.
- When you havefull coverage:Insurance providers make it pretty affordable to add-on gap insurance when you already have a full-coverage policy (liability, collision, and comprehensive coverage).
- When you are leasing: Most dealers require gap insurance as part of their lease contracts.
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Does gap insurance have an expiration date?
The technical expiration date for gap insurance will be when you fully pay off your car loan. But the implicit expiration date (when you should remove it from your policy) is once the amount on your loan balance is less than the actual cash value of your vehicle.
Where can you buy gap insurance?
You can buy gap insurance through your auto insurance company at any time. But if you purchase gap insurance through your car dealer, you’ll have to bundle it into your car loan when you sign all the paperwork.
