Gap vs. Comprehensive Car Insurance: What Is the Difference?

Comprehensive Car Insurance

Gap and comprehensive insurance are similar because both cover the dangers that might result in a car getting totaled. However, the two differ on the portion of the car’s value that insurance will cover.

Comprehensive insurance covers repairs to your car, while gap insurance covers the expenses owed that exceed the insurer’s maximum payout. Other types of insurance, such as liability, cover damages sustained by the driver.

Comprehensive Insurance

If you are involved in a car accident, comprehensive insurance helps you cover the damage to your car, including damage caused by theft, falling objects, or vandalism. 

Most insurance companies offer comprehensive and collision insurance as a package to safeguard your vehicle from more risks.

Comprehensive insurance covers risks such as fires, vandalism, natural disasters, and other events. Collision insurance covers damages such as hitting another vehicle, a traffic hazard, a pole, a wall, or any other stationary object.

While comprehensive insurance may be expensive depending on the value of your car, it is a worthy investment that protects your asset.

Gap Insurance

Guaranteed auto protection or gap insurance is optional. It is designed to bridge the gap between the value of your car if it is declared a total loss and your loan balance. It is also referred to as lease or loan coverage.

How Does Gap Insurance Work?

If your car is totaled while covered under comprehensive and collision insurance, the maximum payout you can get is the value of your car before the accident. Gap insurance covers the difference between the value of the car and what you still owe.

There are three steps to making a gap insurance claim:

  • If your car gets totaled or stolen in an accident, you can claim comprehensive and collision insurance on your policy.
  • Your insurance company then pays out the actual cash value of your vehicle minus the deductible. For instance, if your was worth $15,000 and your deductible is $500, you will receive $14,500.
  • If you still owe money on your car loan or lease, your gap insurance will pay the difference. Using the example above, if your car loan is $17,000, the gap insurance will cover the difference between the car loan and actual cash value:

 $17,000 – $15,000 = $2000

You are responsible for paying the difference if you do not have gap insurance. Some lenders require gap insurance to ensure that they are protected from buyers walking away from the loan or lease if the car is totaled.

In some cases, insurance companies might cover the total loan balance and roll over the negative equity into a new loan. For instance, you may choose to trade in a car that is worth less than what you owe.

The negative equity is typically rolled over into a new car loan. While not all gap insurance policies offer negative equity rollover, it is important to ensure that your insurer does if you have negative equity on your new loan.

Expenses Not Covered Under Gap Insurance

  • Car insurance deductible
  • Security deposits
  • Late fees and overdue payments on a car loan or lease
  • Extended warranties,
  • Lease penalties for excessive use or high mileage
  • Down payment for a new vehicle
  • Carry-over balances on previous loans
  • Credit insurance charges on the loan

Who Needs Gap Insurance

You need gap insurance if you still owe a balance on your car loan. You may also need it if:

  • You lease or loan your vehicle.
  • Your car loan is 60 months or longer.
  • The car is financed with less than 20% down payment.
  • You had negative equity rolled over from your last car loan.
  • Your car depreciates in value faster than others.
  • Your car has a poor resale value.

Some dealerships may combine gap insurance with your car lease contract. However, we do not recommend accepting this arrangement because if the lease includes a gap insurance premium, you might pay more interest.

Who Does Not Need Gap Insurance

You may not need gap insurance if:

  • You will pay off your car loan in less than 60 months.
  • The car historically holds its value.
  • Your down payment is 20% or more, so there are fewer chances that you be behind on your loan.

Comprehensive vs Gap Insurance

Both gap and comprehensive insurance are designed to protect the value of your car. The main difference is that where comprehensive insurance protects its market value, gap insurance covers its lost value.

Comprehensive insurance also covers damages to your car and third party, while gap insurance only covers the loan deficit on your vehicle. 

Another difference between the two types of insurance is that you can claim comprehensive insurance severally, while gap insurance can only be claimed once.


Comprehensive Insurance Gap Insurance
TypeBasic vehicle insurance Supplementary insurance plan
CoverageCovers your car’s actual market valueCovers supplement after insurance has paid out comprehensive insurance
Add-onsCan have add-ons and combinationsCannot have any add-ons
WhoAny car ownerCar owners who have leased or loaned their vehicles and registered the car in their name
VehiclesAny personal or commercial vehiclesCannot be issued to commercial vehicles
WhenAny time during your ownershipWithin 3-4 years of purchasing the car. This option differs depending on the insurance provider
ClaimsCan be claimed severallyCan only be claimed once

Gap vs. Comprehensive Insurance: Which One Do I Need?

Any time you owe more on your car than it is worth, gap insurance is worth the money. In case your car is totaled, comprehensive insurance will allow you to recover the actual cash value of the car while gap coverage gives you the convenience of clearing the balance on the loan owed without paying out of pocket.

Even if you have full coverage, gap insurance is still a necessity. Some lessors and lenders also require it to ensure that the car loan balance will be settled in case of an accident. If you are unsure whether you need gap insurance, we recommend checking out NADA.

Use the National Automobile Dealers Association guide to get your car’s actual cash value. Compare this figure to your loan balance to determine whether you need gap insurance. 

You can also get in touch with a professional to learn more about the benefits of gap insurance.

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