UPDATED: May 25, 2021

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Written By: Melanie MussonReviewed By: Daniel WalkerUPDATED: May 25, 2021Fact Checked

Insurance for an auto is a must in every state, regardless of what the law states. In all but a few states there is a legal requirement to carry auto insurance, but that minimal amount is usually not enough in a real world sense. Even if you have so called “full coverage” insurance on your car, there are instances where the amount you are given in an insurance settlement is far less than you actually need. You may need GAP insurance coverage if any of the following is true:

stop gap insurance

  • You just bought your car and have a loan on it.
  • You are leasing your vehicle.
  • You refinance your vehicle.
  • You use your car as collateral on a loan.

Remember, there is a difference between the amount that the insurance company will pay you for your vehicle, what your car is worth (to you) and what you actually owe on the vehicle.

Where Can You Get GAP Insurance?

There are a few states that do not offer GAP insurance at all. Those states are:

  • Alabama
  • Connecticut
  • Louisiana
  • Maine
  • New Hampshire
  • New Mexico
  • New York
  • Virginia
  • Washington

The District of Columbia also does not offer GAP insurance at all.

In all other states, GAP insurance might be purchased from a number of different providers, including:

  • Your regular insurance agent (online or in person)
  • Through the bank or financing provider (This is likely to be a more expensive option.)
  • Through a specialized insurance seller

When you finance your vehicle, the provider may offer this additional protection to you, but keep in mind that the coverage that they offer is liable to be skewed toward their own needs and might cost more than what you would pay for the same coverage through your agent. Compare prices before you make a final decision.

An Alternative to GAP Insurance?

For the states that do not offer GAP insurance as well as for the majority of the others, there is an alternative that offers much of the same kind of protection. Called a “total loss policy,” this coverage pays not the actual cash value of the car, but the amount that you owe or enough to pay for a new car.

  • Some insurance companies are now offering policies that guarantee a replacement car that is a set amount more valuable than the one that was lost or a car that is one model year younger. For instance, if you insure a 1986 car that is valued at $5,000 and it is a total loss, you will either get a check for that amount or enough to buy a comparable car from the 1987 model year.
  • California does not allow for the total loss policy, however the state does allow for the GAP insurance coverage.

What Does Actual Cash Value Mean in the Real World?

Insurance companies use “actual cash value” to determine how much they pay out in the case of a total loss. That value is not what you owe on a loan nor is it the same amount that you would have to pay to buy a new car. ACV is the reason that most people will need a GAP insurance policy in the first place because they are often going to fall short of what their loan balance is in the event of a total loss. But, imagine that you have a car that is involved in a terrible crash. You want to replace that car with the latest model year of the same car. How would that work out for you? Here is an example using the Ford Taurus as an example.

  • The Kelly Blue Book Value for the 2006 Ford Taurus SE Sedan four door, assuming excellent value, is $8000 (rounded to the nearest dollar amount).
  • The 2013 Ford Taurus model is priced at $25,334 (dealer invoice pricing), which means that at the typical car lot, the advertised price will be roughly $26,000 to $27,000.
  • Add to the above amount the cost of financing, interest, taxes and tags as well as other fees. If you choose any options packages, the price might be substantially higher.
  • In the event of a loss, the amount that you get from the original Taurus might be around the $8,000 that the Kelly Blue Book states it is worth.  That means that you will still be facing several thousands of dollars to buy the car that you want- or finance it through a bank or third party financing company.
  • Figuring either a down payment or a trade in, the monthly cost of your new car would be nearly $400.

What Are the Least Expensive Cars to Insure?

Here are the ten least expensive cars to insure:

  • The Chrysler Town and Country (minivan)
  • Chevrolet Cobalt
  • Dodge Caravan
  • Chevy Impala
  • Ford Taurus
  • Ford Econoline
  • Jeep Grand Cherokee
  • Chevy Malibu
  • GMC Sierra Pickup
  • Toyota Corolla

And the ten most expensive to insure:

  • Chevrolet Silverado C/K Pickup
  • Dodge Ram Pickup
  • Ford F Series Pickups
  • Ford Explorer
  • Nissan Altima
  • Honda Civic
  • Toyota Camry
  • Chevrolet Trailblazer
  • Ford Focus
  • Honda Accord

The more that you owe on your vehicle, the more that you need GAP insurance coverage.

How an Insurance Company Looks at Your Claim

Another way to decide if you need to have GAP insurance coverage is to consider how an insurance company looks at a possible claim on your car. As soon as you drive your car off the lot, it starts losing value. If you buy a used car, it already starts at a lower value point. When you file a claim, the insurance company looks at several options:

  • They can choose to repair the car if the cost of repairs are substantially less than the car is worth or insured for.
  • They can choose to pay the market value of the car if the cost of repairs is higher than it is worth.
  • They can offer a lesser settlement amount somewhere between the two.

Editorial Guidelines: We are a free online resource for anyone interested in learning more about auto insurance. Our goal is to be an objective, third-party resource for everything auto insurance-related. We update our site regularly, and all content is reviewed by auto insurance experts.

Melanie Musson is the fourth generation in her family to work in the insurance industry. She grew up with insurance talk as part of her everyday conversation and has studied to gain an in-depth knowledge of state-specific insurance laws and dynamics as well as a broad understanding of how insurance fits into every person’s life, from budgets to coverage levels. Through her years working in th...

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Written by Melanie Musson
Published Insurance Expert Melanie Musson

Dan Walker graduated with a BS in Administrative Management in 2005 and has been working in his family’s insurance agency, FCI Agency, for 15 years (BBB A+). He is licensed as an agent to write property and casualty insurance, including home, auto, umbrella, and dwelling fire insurance. He’s also been featured on sites like Reviews.com and Safeco. He reviews content, ensuring that ex...

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Reviewed by Daniel Walker
Licensed Car Insurance Agent for 15 Years Daniel Walker