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. Your car dealership may offer gap insurance when you get a new car, but you may be able to pay less by adding gap coverage, or a similar coverage called loan/lease payoff, to your auto policy (instead of purchasing it from the dealership). Or your lender may include a gap waiver in your loan or lease, which eliminates the need for gap insurance.

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What are my options for purchasing gap insurance?

You can typically get gap insurance through your auto insurer or car dealership. Although dealership gap insurance is usually included when purchasing a vehicle, you can decline it. Some insurers might sell gap insurance as a standalone insurance policy, but it's more commonly added to your existing auto insurance policy. Note that lenders may add a gap waiver to your car loan or lease, which would serve the same purpose as gap insurance. Learn more about gap insurance for a leased car.

Pro tip:

Progressive offers loan/lease payoff coverage, which is similar to gap coverage. The main difference is that the payout for loan/lease payoff coverage is limited to no more than 25% of your vehicle's value, though the exact limit varies by state.

What is the gap insurance cost at the dealer?

When purchased at the dealer, gap insurance can cost several hundred dollars or more, spread equally throughout your loan payments and therefore subject to 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.