Essential Coverage for Your New Vehicle
New Car GAP Insurance Protection
New cars lose 20% of value in the first year. GAP insurance ensures you're not paying for depreciation you can't drive.
Why New Cars Need GAP Insurance
The moment you drive your new car off the lot, it becomes a used car. This instant depreciation creates an immediate gap between what you owe and what it's worth.
Immediate 10% Value Loss
The average new car loses 10% of its value the moment you take ownership. On a $40,000 car, that's $4,000 gone instantly.
Average 20% total value loss
Early payments mostly cover interest
72-84 month loans increase gap risk
New Car Example
New Car Value vs. Loan Balance Over Time
See exactly when GAP insurance is most critical for your new vehicle
| Time Period | Depreciation | Car Value | Loan Balance | GAP Amount |
|---|---|---|---|---|
| Minute You Drive Off | -10% | $36,000 | $38,000 | $2,000 |
| Month 6 | -15% | $34,000 | $36,500 | $2,500 |
| Year 1 | -20% | $32,000 | $35,000 | $3,000 |
| Year 2 | -30% | $28,000 | $31,000 | $3,000 |
| Year 3 | -40% | $24,000 | $26,000 | $2,000 |
Key Insight: The GAP is highest in the first 2-3 years of ownership. This is when GAP insurance provides the most value and protection.
New Car GAP Insurance Considerations
These factors determine how much GAP protection you need
Down Payment Amount
Less than 20% down payment significantly increases your GAP risk
Loan Term Length
72-84 month loans keep you underwater longer
Vehicle Type
Luxury cars and certain brands depreciate faster
Trade-in Equity
Negative equity from previous loan increases GAP
Interest Rate
Higher rates mean slower principal reduction
Mileage Habits
High mileage accelerates depreciation
Dealer GAP vs. Insurance Company GAP
Understanding your options helps you make the best financial decision
| Aspect | Dealer/Manufacturer GAP | Insurance Company GAP |
|---|---|---|
| Coverage Period | Fixed term (usually loan length) | Flexible, can cancel anytime |
| Payment Structure | One-time, added to loan | Monthly/annual payments |
| Coverage Amount | May have maximum limits | Typically covers full gap |
| Transferability | Usually not transferable | Can transfer to new vehicle |
| Refund Policy | Pro-rated refund if cancelled | No refunds, but no future payments |
Dealer GAP Pros
- • Convenient one-stop shopping
- • No monthly payments to remember
- • May include additional perks
Insurance GAP Pros
- • Typically more affordable overall
- • Cancel anytime without hassle
- • Doesn't increase loan amount
- • Often better coverage terms
When to Cancel New Car GAP Insurance
Annual Review Checklist
Use Kelley Blue Book or NADA guides for accurate valuation
Get current payoff amount from your lender
If loan balance is less than car value, consider cancelling
Keep GAP if the difference is less than your deductible
Typical Timeline: Most new car owners can safely cancel GAP insurance after 3-4 years when loan balance drops below vehicle value.
Protect Your New Car Investment Today
Don't let depreciation leave you financially vulnerable. Get affordable GAP insurance for your new vehicle.
New Car GAP Insurance Questions
Why do new cars need GAP insurance more than used cars?
New cars experience the steepest depreciation in their first year, losing up to 20% of value immediately. Used cars have already absorbed this initial depreciation hit, making the gap between loan value and car value typically smaller. New car buyers also often finance larger amounts with smaller down payments.
Should I buy GAP insurance from the dealer or my insurance company?
Insurance company GAP coverage is usually more affordable and flexible. Dealer GAP is a one-time charge added to your loan, increasing your total interest paid. Insurance GAP can be cancelled anytime without penalty, while dealer GAP requires a refund process. Compare both options for coverage limits and total cost.
How long should I keep GAP insurance on a new car?
Keep GAP insurance until your loan balance drops below your car's actual cash value, typically 2-4 years for new cars. Review annually by comparing your loan balance to your car's value using resources like Kelley Blue Book. Most people can safely cancel GAP coverage by year 3 or 4.
Does GAP insurance cover my insurance deductible?
Standard GAP insurance doesn't cover your comprehensive or collision deductible. Some enhanced GAP policies offer deductible coverage as an add-on. Ask your Midland Insurance agent about GAP Plus options that include deductible reimbursement up to $1,000.
What happens to GAP insurance if I refinance my car loan?
If you have dealer GAP, you may need to purchase new coverage for the refinanced loan. Insurance company GAP typically continues as long as you maintain the policy. Always verify coverage continuity when refinancing and ensure your new loan terms are covered.
Is GAP insurance worth it for a new car with 0% financing?
Yes, even with 0% financing, GAP insurance is valuable because depreciation still occurs regardless of your interest rate. The main risk is the difference between what you owe and the car's value, not the interest charges. With 0% financing, you're often financing more of the purchase price, increasing your GAP risk.