Gap Insurance Explained: Do NJ Drivers Really Need It?

Gap insurance, short for guaranteed asset protection, is optional coverage that can help drivers avoid financial loss if their car is totaled or stolen. It may cover the difference between what you still owe on your auto loan or lease and the vehicle’s actual cash value at the time of the loss. Since new vehicles often depreciate faster than many drivers expect, gap insurance can help prevent a major accident from becoming a major financial setback.

How Does Gap Insurance Work?

When a car is totaled, your standard auto insurance typically pays the vehicle’s current market value, not the amount you originally financed. If the car has depreciated, there may be a gap between that payout and your outstanding loan or lease balance.

Without gap insurance, you might have to cover that difference yourself. For example, if you owe $24,000 on your car but it’s only worth $19,000 at the time of the accident, you would have to pay the remaining $5,000. Gap insurance may cover that shortfall, so you can walk away from the loss without lingering debt.

What Should I Expect to Pay for Coverage?

Gap insurance rates often vary by provider. Some car dealerships offer gap coverage for a flat fee, while auto insurers may charge a small additional premium each month. In many cases, buying it through your insurance company is the more cost‑effective option.

Contact Us

If you’re a New Jersey driver wondering if gap insurance makes sense for your vehicle and financing plan, Diamond Agency can help. Contact our team today to review your options and get guidance tailored to your situation.

This blog is intended for informational and educational use only. It is not exhaustive and should not be construed as legal advice. Please contact your insurance professional for further information.