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Gap Calculation Formula:
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Auto loan gap coverage is an insurance product that covers the difference between what you owe on your auto loan and the actual cash value (ACV) of your vehicle if it's totaled or stolen. This "gap" can occur when a vehicle depreciates faster than the loan balance decreases.
The gap is calculated using a simple formula:
Where:
Explanation: If your vehicle is declared a total loss, standard insurance typically pays only the ACV, which might be less than what you still owe on your loan. Gap coverage pays this difference.
Details: Gap coverage is particularly important for new vehicles that depreciate quickly, vehicles with low down payments, long loan terms, or when rolling negative equity from a previous loan into a new one.
Tips: Enter your current auto loan balance and the estimated actual cash value of your vehicle. Both values should be in the same currency. The calculator will show you the potential gap amount that would need coverage.
Q1: Who needs gap coverage?
A: Gap coverage is recommended for those who owe more on their auto loan than their 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 coverage usually costs between $20-$40 per year when added to a comprehensive auto insurance policy.
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: Most gap policies do not cover your insurance deductible. You would still be responsible for paying your deductible amount.
Q5: Is gap coverage available for leased vehicles?
A: Yes, gap coverage is often included in lease agreements, but it's important to verify this with your leasing company.