1. What is Gap Insurance?

Gap insurance covers the difference between what you owe on your auto loan and the car's actual cash value (ACV) if it's totaled or stolen. This "gap" can be substantial, especially in the early years of a loan.

2. How Does the Calculator Work?

The calculator uses the simple formula:

Where:

• \( Loan \) — Remaining balance on your auto loan
• \( ACV \) — Actual cash value of your vehicle (what insurance would pay)

Explanation: The calculation shows how much you would owe out-of-pocket if your vehicle was totaled today.

3. Importance of Gap Calculation

Details: Knowing your potential gap helps determine if gap insurance is worthwhile. It's most valuable when you have a large loan balance relative to your car's value.

4. Using the Calculator

Tips: Enter your current loan balance and your car's estimated ACV (check sources like Kelley Blue Book). Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Who needs gap insurance?
A: Those who financed a new car with little down payment, have long loan terms (72+ months), or vehicles that depreciate quickly.

Q2: When is gap insurance not needed?
A: When you have positive equity (loan balance less than car's value) or paid cash for the vehicle.

Q3: How much does gap insurance cost?
A: Typically $20-$40 per year when added to auto policy, or $400-$700 as dealer add-on.

Q4: Does gap cover my deductible?
A: Standard gap doesn't cover deductibles, but some policies offer "loan/lease payoff" coverage that may.

Q5: When should I cancel gap insurance?
A: When your loan balance falls below your car's ACV, or when you sell/trade the vehicle.