How does gap insurance work?

An unfortunate reality of new car ownership is that your vehicle will begin depreciating in value the moment it leaves the new car lot. How much it depreciates will depend on a number of factors such as the make and model and the number of miles you drive, but its value can quickly decline by as much as 15% to 20% from the price you paid.

Let’s say you bought a new car for $30,000. A year after purchasing it, you still owe $28,000 on the car loan, but your insurance company has determined its ACV is only $25,000. Gap insurance covers that gap between what you still owe and the ACV of the car.

Gap insurance can be worthwhile for drivers of all ages, but is particularly helpful for younger drivers who may not have yet built up the savings needed to cover the difference. It can also be quite useful for seniors who may be on fixed incomes and don’t want or need financial surprises. Anyone who can’t afford to pay the difference out of pocket should consider gap insurance.

“It is especially valuable to those who put down very little on their new purchase, or those financing for very extended terms,” says Lynch.

Best gap insurance companies

Some major car insurance companies offer gap insurance as an option to a standard policy. It’s not usually an expensive add-on, typically around $90 a year or about $7.50 per month.

To help you choose a car insurance provider with gap insurance bundled in, we’ve gathered rates from the largest insurance providers and broken them down by various categories, including by age and state.

In our review, we found State Farm had the highest ranking overall as the best company for a full coverage policy with gap insurance included, The Hanover was cheapest for young drivers, and the AAA Auto Club Group offered the best deals for seniors.

Read on for a more detailed look.

Best overall gap insurance companies

Let’s begin with the big picture and compare the major national car insurers that offer gap insurance. We looked at factors such as rates, financial stability as assessed by credit rating agency AM Best, survey performance from customers focused on factors such as customer satisfaction and premium pricing, complaints filed with the National Association of Insurance Commissioners (NAIC) and their overall rating in Insurance.com’s annual ranking. 

Premiums are for full coverage car insurance with gap insurance included, based on the average rates for a male and female driver, aged 40 driving a Honda Accord LX.

Here’s how the top providers ranked:

Best gap insurance companies
CompanyNAIC complaint ratio*AM BestSurvey score**Annual premium with gap insuranceInsurance.com score
State Farm0.52A++4.44$1,8694.58
Travelers1.03A++4.25$2,0264
Nationwide0.66A+4.12$2,1834.18
Progressive0.73A+4.26$2,6924.06
Allstate0.95A+4.28$4,0663.54
Farmers0.77A4.32$4,1783.6
USAA0.99A++4.48$1,0474.37
Auto-Owners0.5A++4.26$1,9124.51
American Family1.1A4.34$2,0563.68

* The lower the score, the fewer the complaints filed with the NAIC. Companies below 1.0 are better than the industry average

**Based on a survey of insurance customers.

Cheapest gap insurance companies

There are a lot of things to consider when buying gap insurance, but to many drivers price is what matters most.

If you’re looking for a company that offers the cheapest full coverage insurance rates, with gap insurance included, USAA comes out on top. Unfortunately, it’s only available to current or former members of the military and their families.

A number of regional car insurance companies, like Vermont Mutual, have some of the best rates, and among the national providers, State Farm is the cheapest.

Here’s how they compare:

Cheapest gap insurance companies
Cheapest gap insurance companiesMonthly premium with gap insuranceAnnual premium with gap insuranceGap insurance premium
USAA*$87$1,047$51
Vermont Mutual$119$1,424$71
Mapfre Insurance$124$1,493$70
Frankenmuth Insurance$125$1,503$101
Auto Club Group - ACG (AAA)$125$1,505$82
Erie Insurance$136$1,628$238
Safety Insurance$150$1,797$25
The Hanover$153$1,831$71
State Farm$156$1,869$46
Auto-Owners$159$1,912$62
Travelers$169$2,026$49
American Family$171$2,056$58
Nationwide$182$2,183$69
Shelter Insurance$207$2,480$114
Auto Club Enterprises (AAA)$207$2,483$89
Iowa Farm Bureau$212$2,543$26
Kemper$218$2,622$91
Progressive$224$2,692$53
The Hartford$241$2,891$121
Mercury Insurance$250$3,004$41
Amica$266$3,189$127
Allstate$339$4,066$119
Farmers$348$4,178$158
Sentry Insurance$498$5,980$24
CSAA Insurance (AAA)$525$6,302$168

*USAA is only available to military members and their families.

Cheapest gap insurance companies by age

Car insurance companies use their own risk models to determine what premiums to charge drivers, but age is a common factor in car insurance rates. While one company might be the lowest priced for a 40-year-old driver, it may not be the cheapest for an 18-year-old.

For that reason, you should shop around to compare rates as you get older or as your life circumstances change. For example, married drivers typically get better rates than unmarried drivers and homeowners often get a discount, too. 

Here’s a look at what companies charge for car insurance with gap insurance included at various ages:

Average annual premium with gap insurance
Company 18
years old
25 years old 40 years old 65 years old
The Hanover$3,587$2,200$1,831$1,665
Erie Insurance$4,120$2,054$1,628$1,545
USAA$4,197$1,252$1,047$1,019
Iowa Farm Bureau$4,200$2,710$2,543$2,340
Frankenmuth Insurance$4,551$2,081$1,503$1,431
Auto Club Group - ACG (AAA)$4,663$1,795$1,505$1,357
State Farm$4,740$2,245$1,869$1,709
Auto-Owners$4,789$2,482$1,912$1,783
Vermont Mutual$4,813$1,909$1,424$1,424
Travelers$5,384$2,366$2,026$1,911
American Family$5,595$2,450$2,056$1,993
Safety Insurance$6,663$2,041$1,797$1,521
Shelter Insurance$6,870$3,573$2,480$2,179
The Hartford$7,227$3,717$2,891$2,523
Nationwide$7,389$2,631$2,183$1,947
Mapfre Insurance$7,490$1,729$1,493$1,493
Kemper$7,521$3,137$2,622$2,664
Auto Club Enterprises (AAA)$8,180$3,022$2,483$2,276
Amica$10,081$3,572$3,189$3,131
Sentry Insurance$11,159$6,939$5,980$5,253
Allstate$11,368$4,352$4,066$3,692
Progressive$11,775$3,196$2,692$2,418
Mercury Insurance$12,805$3,751$3,004$2,677
CSAA Insurance (AAA)$14,925$6,914$6,302$5,357
Farmers$15,404$5,109$4,178$3,718

Cheapest gap insurance companies by state

Where you live can have a lot to do with rates. In some states, like West Virginia, drivers can get gap coverage for as little as $35 per year, while it may be closer to $200 in other states. 

For that reason, while one company may offer the cheapest rates across the country, an insurance provider that specializes in only a handful of states or one region might offer cheaper rates.

Here’s what some of the best deals for car insurance with gap coverage are by state:

Cheapest gap insurance companies by state
State Monthly premium with gap insurance Annual premium with gap insurance Gap insurance premium added
Alabama$197$2,358$80
Arkansas$186$2,228$86
Arizona$272$3,261$104
California$235$2,814$94
Colorado$337$4,043$158
Connecticut$190$2,277$75
Washington, D.C.$173$2,070$82
Delaware$279$3,350$69
Florida$333$3,993$63
Georgia$190$2,274$53
Iowa$114$1,373$39
Idaho$142$1,703$68
Illinois$178$2,141$81
Indiana$164$1,973$73
Kansas$188$2,254$90
Kentucky$294$3,534$108
Massachusetts$196$2,347$57
Maryland$263$3,160$95
Maine$133$1,602$54
Michigan$340$4,082$149
Minnesota$204$2,442$87
Missouri$417$5,004$204
Mississippi$179$2,151$87
Montana$372$4,463$197
North Dakota$120$1,434$50
Nebraska$186$2,230$87
New Hampshire$121$1,448$62
New Jersey$233$2,797$73
New Mexico$190$2,278$54
Nevada$318$3,813$86
Ohio$118$1,413$86
Oklahoma$252$3,022$104
Oregon$176$2,112$64
Pennsylvania$206$2,472$112
Rhode Island$213$2,557$83
South Dakota$242$2,909$95
Tennessee$171$2,056$75
Texas$280$3,364$70
Utah$191$2,297$75
Virginia$158$1,899$69
Vermont$120$1,439$65
Washington$156$1,871$50
Wisconsin$192$2,301$96
West Virginia$129$1,553$35

Gap insurance rates by city

Similar to the variation in rates you can see from state to state, insurance rates can also vary greatly by city. 

Here’s a comparison of some of the best rates for full coverage insurance with gap insurance in major cities across the country:

Gap insurance rates in major cities
City, StateMonthly premium with gap insuranceAnnual premium with gap insuranceGap insurance premium added
Los Angeles, CA$304$3,651$123
Chicago, IL$207$2,490$93
Houston, TX$328$3,941$76
Philadelphia, PA$330$3,961$168
Phoenix, AZ$336$4,032$127
San Antonio, TX$257$3,087$60
San Diego, CA$210$2,521$83
Dallas, TX$306$3,669$76
San Jose, CA$208$2,491$83

Cheapest gap insurance by ZIP code

Insurance companies are very good at calculating risk right down to a particular neighborhood. While one area of a city might be prone to car thefts, for example, another might have relatively few.

Here’s a look at the cheapest ZIP code in each state for gap insurance:

Cheapest ZIP code for gap insurance in each state
ZIP Code City Monthly premium with gap insurance Annual premium with gap insurance Gap insurance premium added
35601Decatur$178$2,139$74
72701Fayetteville$170$2,041$77
85643Willcox$223$2,678$100
96122Portola$186$2,228$77
81657Vail$252$3,024$125
6351Jewett City$157$1,880$64
20001Washington$173$2,070$82
19944Fenwick Island$234$2,806$69
32948Fellsmere$240$2,882$45
30601Athens$157$1,883$53
52240Iowa City$101$1,215$33
83702Boise City$123$1,476$58
61704Bloomington$148$1,778$69
46530Granger$135$1,615$56
66062Overland Park$160$1,918$69
42301Owensboro$192$2,308$76
1950Newburyport$148$1,775$43
21716Brunswick$175$2,105$73
4736Caribou$125$1,499$57
49868Newberry$197$2,364$81
55331Tonka Bay$142$1,705$59
65043Holts Summit$237$2,839$115
39701Columbus$159$1,914$78
59801Missoula$279$3,342$130
58078West Fargo$99$1,188$35
68138Omaha$156$1,866$72
3743Claremont$114$1,365$60
7701Fairview$172$2,068$55
88036Fort Bayard$160$1,919$49
89406Fallon$209$2,506$75
44035Elyria$93$1,112$66
73533Duncan$211$2,534$98
97424Cottage Grove$142$1,710$61
15120Pittsburgh$182$2,182$100
2840Newport$166$1,988$65
57201Watertown$185$2,223$68
37764Sevierville$154$1,849$70
76230Bowie$243$2,913$78
84737Hurricane$163$1,958$63
24401Staunton$144$1,723$75
5602Montpelier$115$1,383$63
98520Aberdeen$143$1,718$48
54901Oshkosh$119$1,427$62
25401Martinsburg$116$1,393$29

When shouldn’t you buy gap insurance?

There’s no reason to purchase this coverage if you purchase a vehicle with cash or own it outright. You can also skip it if you’ve made a large down payment and are not at risk of being upside down on your car loan. Gap insurance only comes into play when you owe more on a loan than a vehicle’s actual cash value and the car is a total loss.

Methodology

Insurance.com commissioned average car insurance rates from Quadrant Data Services for a sample driver aged 40, with a clean record and good credit driving a 2023 Honda Accord LX. Rates are based on a full coverage policy with 100/300/100 liability limits and $500 deductibles. Rates for gap insurance coverage were also requested.

Survey scores were compiled based on a consumer survey performed as part of the 2024 Best Car Insurance Companies ranking and are based, with equal weighting, on customer satisfaction overall and with claims handling as well as whether they would recommend the company to others and whether they plan to renew with the company.

Third-party ratings from AM Best and the National Association of Insurance Commissioners were used along with the survey score and average rates to rank the best gap insurance companies.