How does gap insurance work through a dealership?
A dealership may offer gap insurance for purchase while you're in the process of buying a new car. If you buy coverage through them, you would file a claim with your gap coverage provider to pay off your loan or lease.
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Key takeaways
Buying gap insurance through a dealership may cost more than buying through your auto insurer
Compare the cost and limits of the gap coverage your dealership offers with your insurer's coverage
Is gap insurance through the dealership required?
Gap insurance through a dealership is optional, but your lender may require some form of gap coverage when you finance your car.
Important note: Your lender may include a gap waiver in your loan or lease, which may waive the remainder of your auto loan or lease if your vehicle is stolen or totaled. In which case, you wouldn't need gap insurance.
What are my options for purchasing gap insurance?
Through the dealership
During the buying process, dealerships often offer their own gap coverage for a flat fee. If you decide to purchase through them, they may roll the coverage fee into your auto loan.
Through your insurer
Many auto insurers also offer gap or similar coverage for paying off a loan or lease. You can typically purchase coverage as an add-on to your existing car insurance policy. You'll pay an additional premium for gap insurance, but you can remove it once you no longer need it.
Some insurers might sell gap insurance as a standalone insurance policy, but it's more commonly added to your existing auto insurance policy. Learn more about gap insurance for a leased car.
Pro tip:
Instead of gap insurance, Progressive offers loan/lease payoff coverage. This coverage also helps pay off your car loan or lease if your vehicle is totaled, typically limited to no more than 25% of your vehicle's value, though the exact limit varies by state.
Cost of gap insurance through a dealership vs. insurance
When purchased at the dealership, gap insurance can cost several hundred dollars or more, spread equally throughout your loan payments, and may result in paying more interest.
When purchased through your insurer, your premium will increase (usually a minimal amount) when you add the coverage, and you can choose to remove it when it no longer makes sense, potentially leading to a cheaper cost than if you purchased it from the dealer.
Can I cancel gap insurance from my dealership?
Some dealers include a cancellation period of 30 days, during which you can cancel your gap insurance and receive a full refund. Review the terms of your agreement and contact your dealer for specifics about cancelling your coverage.
Dealers may require you to fill out a gap insurance cancellation form. If you cancel coverage outside of the cancellation period, you'll still need to make any overdue payments, including interest accrued up until your cancellation. Learn more about how to cancel gap insurance.
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