Is Gap Insurance a Scam?

Reviewed by Kara H. North, Managing Attorney at Moxie Law Group. Last reviewed September 21, 2026.

Reviewed by Kara H. North, Managing Attorney at Moxie Law Group. Reviewed May 28, 2024.

Bridging the Gap

Picture this, you drive a brand-new car off of the car lot—and against the advice of Dave Ramsey, you took advantage of the zero-down financing too. A month later, another driver’s negligence causes you to wreck your beautiful new car. The car is total loss and the insurance company is willing to give you the car’s ACV (actual cash value). The problem is that you’re “upside down” on the car value.  Being “upside down” is an expression used to describe when the loan you financed is of greater value than the car is worth because the car’s value depreciated the minute you drove it off of the lot. Now, you’re out a car and you’re out a couple thousand dollars that you still owe on the car loan. What do you do? Well, if you’ve got gap insurance you’re not worried. If you don’t, it may be a different story.

What is Gap Insurance

Gap insurance is a supplemental policy that you can purchase, either directly from your insurance and/or your financial institution/lien holder that allows you to buy coverage to cover the difference between the car’s value and the value of your loan on the car.

Is It Worth It?

Gap insurance isn’t expensive, and it can save you thousands of dollars, but it isn’t a no-brainer for everyone. For example, if you’re purchasing a car in cash, you don’t need gap insurance. Gap insurance only protects you if the loan balance is greater than the car’s worth. This protects you from having to pay additional money out of your own pocket to pay off the loan in the event the car is a total loss. You cannot pay cash for the car then claim that the car depreciated and that you deserve more due to that. Gap insurance may not be worth it if the gap is small, or non-existent to begin with. It used to be that most people opted for a three-to-five-year payment plan. These days, seven-year payment plans aren’t unusual. If you know that the initial monthly payments will already stretch you, you may want to consider gap insurance, because the difference between the loan balance and the car’s actual balance may be difficult to pay on top of a new car payment. Sometimes financial institutions will let you roll over that deficient value into a new car loan if you can’t pay the cash up front, but when you do that, you’re usually putting yourself further “upside down” on your new loan. It’s not a great idea.

Eligibility

Not all cars are eligible for gap insurance. Whether or not your car is eligible will vary from insurance company to insurance company. Generally speaking, however, insurance companies are less likely to offer gap insurance coverage to older vehicles. If you need the financial security that gap coverage provides, but you cannot find an insurance company to offer it for that particular vehicle, you may want to reconsider your decision, as going without a car may put you in an even worse financial position. Also, there are limits to gap coverage, so make sure that you’re taking care of your vehicle even if you do have gap coverage. If your car’s depreciated too much, gap coverage may not be enough to bridge the gap between the settlement and the car’s actual value.

Can an Attorney Make up the Difference?

You may be wondering if hiring an attorney is a substitute for gap insurance. Can’t a personal injury attorney get you a settlement to bridge the gap between your loan balance and your car’s value? Not usually. Insurance companies are rarely willing to budge and pay out more for a totaled vehicle. Unless you can provide receipts showing various upgrades that you’ve paid for, even an attorney may have a difficult time getting the insurance company to increase their valuation of your vehicle. There are some accidents that total a car, due to frame damage, but the passengers don’t sustain physical injuries. Since most attorneys either don’t handle property damage, or don’t take fees on it, it’s unlikely you’ll find an attorney willing to take your case if there isn’t a bodily injury claim associated with it. Even if you are injured, you don’t want to rely on your bodily injury settlement to cover the remaining balance on the loan. Remember, insurance companies evaluate the property damage and bodily injury claim separately, and they won’t offer you more from the personal injury settlement simply because you were upside down on your loan for the property damage. If you have a question about your situation, Moxie Law Group is here for you. Contact us today to set up your initial consultation.

Gap Insurance FAQs

Is gap insurance worth it?

It often is if you owe more on your vehicle than it is worth, which is common in the first few years of a loan or lease. If your loan balance is already below the car’s value, you may not need it.

Does gap insurance cover a totaled car after an accident?

Gap insurance covers the difference between what you owe and what your car was worth when it is totaled. It does not replace your collision coverage; it works alongside it. If another driver caused the crash, our Utah car accident attorneys can pursue the at-fault driver as well.

Can I cancel gap insurance once my loan is paid down?

Usually yes. Once you owe less than the car is worth, many people cancel and may be entitled to a partial refund on prepaid coverage.

When a Totaled Car Comes With an Injury

Gap insurance covers the loan — it doesn’t cover you. If the crash that totaled your car also left you with medical bills, lost work, or lingering pain, that’s a separate claim against the at-fault driver, and it’s usually worth far more than the vehicle. Our Salt Lake City car accident lawyers evaluate both sides of the ledger in a free consultation — no fee unless we win.