to policyholders with leased or financed vehicles. If your car is totaled or stolen and the balance of your loan exceeds the value of your car, gap insurance covers the difference.

If you’re unsure of what gap insurance is and why you need it, we’ve created a guide to help you understand Travelers’ gap insurance offerings and if this type of car insurance is right for you.

We’ll look at how gap insurance works, whether you should buy it from a dealership or your insurance provider, and how much it will cost to add to your policy.

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Does Travelers offer gap insurance?

Yes, Travelers does offer gap insurance—but it’s called loan/lease gap insurance.

Gap insurance

, or guaranteed asset protection, offers financial protection for your vehicle for the difference between the

actual cash value (ACV)

of the vehicle and the amount you still owe on your loan or lease if your car is totaled or stolen.

Because new vehicles lose value the second you drive them off the lot, there’s a period in the early loan term where you owe more on your car than it’s worth. If your car is stolen or deemed a

total loss

from an accident during this period, your

comprehensive

and

collision coverage

will only cover the car’s actual cash value—that is, if you have them.

Without gap insurance, you could end up paying for a vehicle you can no longer drive, especially if you had a smaller down payment or a longer loan or lease term.

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How does gap insurance work with Travelers?

You can purchase gap insurance from Travelers as add-on coverage if you have full coverage (i.e., collision and comprehensive coverage). Because gap insurance covers the difference between your comprehensive/collision payout and your unpaid loan balance, it only makes sense to purchase gap insurance if you have both types of insurance coverage.

However, keep in mind that to purchase gap insurance through Travelers, you must be the original owner of your vehicle, and the car must be purchased from a new car dealership—you will not be eligible for gap insurance if you purchased your vehicle from a previous owner in a private sale.

Loan/lease gap coverage from Travelers also does not cover the following:

Carry-over balances

Lease penalties

Overdue payments

Extended warranties

If your new car is totaled or stolen, and you have gap insurance through Travelers, you can file a claim to cover the difference between the vehicle’s ACV and the unpaid balance on your car loan. Here’s how it works:

You financed a new car worth $25,000, and after a 10% down payment, you took out a loan for $22,500. To protect your new car (and your wallet), you opted to add gap coverage through Travelers to your existing policy.

A couple of months later, you were involved in a bad accident, and your car was deemed a total loss. Because of depreciation, you’ve lost about 15% of the car’s value, meaning the actual ACV of your car is only $21,250—this is the amount collision coverage will pay out, minus your deductible (let’s say $1,000).

You file a claim, and your insurer pays out $20,250 ($21,250 minus the $1,000 deductible). This leaves you with an unpaid balance on your loan of $2,000.

Because you have gap coverage, you can submit copies of your loan agreement and the collision insurance settlement to Travelers to claim the remainder of your loan balance (the $2,000).

That said, it’s important to remember that loan/lease gap coverage with Travelers will not cover the cost of repairs to your vehicle or the cost of a new car to replace the totaled vehicle—but it will offer protection from negative equity on a vehicle you cannot drive anymore.

If you don’t currently have a Travelers insurance policy, you can add gap insurance to a new policy by calling an agent or searching for

car insurance quotes online

. If you have an existing Travelers policy, speak to your insurance representative and ask about adding loan/lease gap insurance to your policy.

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Gap insurance vs. loan/lease payoff coverage

Some insurers will offer gap insurance, while others provide “loan/lease payoff coverage.”

Loan/lease payoff coverage is similar in that it will take effect if your car is totaled or the vehicle is stolen with an outstanding lease or auto loan, but it will only cover up to 25% of your vehicle’s value. Depending on the outstanding balance on your loan, that might leave you with out-of-pocket costs.

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Is it better to buy gap insurance from the dealership or your insurance company?

Most car dealerships or lenders offer gap insurance as a one-time premium that can be rolled into your purchase or loan agreement, especially if you

finance your vehicle through the dealership

. Sometimes, gap insurance will be included automatically in your paperwork unless you specifically decline the coverage.

If you have a car loan from a bank or credit union, you may also be able to purchase gap insurance through them.

Generally speaking, buying gap insurance

through a dealership

or lender is more expensive than with your insurance provider because you’ll have to pay interest on it. In most cases, dealers and lenders include gap insurance as a lump sum, which is then bundled into your total loan balance and subject to interest along with the rest of your loan.

However, if you buy gap insurance from a car insurance company, you’ll only be subject to a slight increase in your annual premium. On average, the cost is between $20 and $40 per year, which is interest-free.

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How do I know if I have gap insurance?

Is gap insurance worth it?

In most cases, investing in gap insurance is a good idea, especially if you have an outstanding car loan on your vehicle.

Increasing interest rates

and

longer car loan terms

mean drivers owe more on their cars than they’re worth for longer periods.

If you’re involved in a crash or your car is stolen when you still owe more than your car’s value, you’re left in a sticky spot. Investing in gap insurance is an affordable way to protect yourself financially—and it usually costs less than $50 a year to add to your insurance policy.

If your car is totaled, you could lose thousands of dollars to depreciation, so the small investment in gap insurance isn’t a considerable expense!

Gap insurance might be worth it if any of these situations apply to you:

You bought a new vehicle within the past year

Your down payment was 20% or less

The lease or loan term on your car is less than five years

You rolled over what you owed on a previous vehicle into your new loan

Your loan balance exceeds the actual cash value (ACV) of your car

You drive a lot (which increases depreciation)

You have a long payoff period on your car

Also, remember that you don’t need gap insurance for the entire life of your car. You can drop gap coverage when the loan balance doesn’t exceed the car’s actual cash value.

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How to find the best gap insurance

Not all insurance providers offer gap insurance. For example,

State Farm

and

GEICO

—two of the biggest car insurance providers in the U.S.—don’t sell gap insurance. If you’re wondering whether Travelers’ gap insurance is right for you, shop around and compare quotes from at least three providers to find the best rate.

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