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Gap Auto Coverage Formula:
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Gap auto coverage (Guaranteed Asset Protection) is an insurance policy that covers the difference between what you owe on your auto loan and the actual cash value of your vehicle if it's totaled or stolen.
The gap coverage calculation uses a simple formula:
Where:
Explanation: When this calculation results in a positive number, it represents the amount that would not be covered by standard auto insurance in a total loss scenario.
Details: Gap coverage is particularly important for new vehicles that depreciate quickly, vehicles with low down payments, or long-term loans where depreciation may outpace loan repayment.
Tips: Enter your current auto loan balance and the estimated current value of your vehicle. Both values should be in USD. The calculator will show you the potential gap amount that would need coverage.
Q1: Who needs gap auto coverage?
A: Gap coverage is recommended for those who owe more on their auto loan than the vehicle's current value, which is common in the first few years of a new car loan.
Q2: How much does gap coverage typically cost?
A: Gap insurance typically costs between $20-$40 per year when added to an existing auto policy, or a few hundred dollars if purchased from a dealership.
Q3: When should I consider dropping gap coverage?
A: You can consider dropping gap coverage once your loan balance is less than your vehicle's actual cash value, typically after 2-3 years of payments.
Q4: Does gap coverage cover my deductible?
A: Standard gap coverage doesn't typically cover your comprehensive/collision deductible. Some policies offer "loan/lease payoff" coverage that may include the deductible.
Q5: Is gap coverage worth it for used cars?
A: It can be valuable for nearly new used cars or if you rolled negative equity from a previous loan into your current auto loan.