1. What is Gap Insurance?

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

2. How Does Gap Calculation Work?

The calculator uses the simple formula:

Where:

• \( Loan \) — Remaining balance on your auto loan
• \( Vehicle\ ACV \) — Actual Cash Value of your vehicle at time of loss

Explanation: The gap amount represents the potential financial shortfall you would face if your vehicle were totaled today.

3. Importance of Gap Insurance

Details: Gap insurance is particularly important for new cars (which depreciate quickly), long-term loans (60+ months), or when you've made a small down payment (less than 20%).

4. Using the Calculator

Tips: Enter your current loan balance and the estimated actual cash value of your vehicle. Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Who needs gap insurance?
A: Anyone who owes more on their car loan than the car is currently worth should consider gap insurance.

Q2: How is ACV determined?
A: Insurance companies determine ACV based on your car's make, model, year, mileage, condition, and local market prices.

Q3: When is gap insurance not needed?
A: When your loan balance is less than your car's value, or if you can comfortably cover the potential gap amount yourself.

Q4: How much does gap insurance cost?
A: Typically $20-$40 per year when added to your auto policy, or $400-$700 if purchased through your dealer.

Q5: Does gap insurance cover my deductible?
A: Standard gap insurance doesn't cover deductibles, but some policies offer "loan/lease payoff" coverage that may include it.