How does GAP insurance work when a car is totaled?

Is GAP insurance worth the cost?

As with any type of insurance, the question of whether or not to get insurance and what type of policy you get all depends on how valuable the item you're getting insured is, but it also comes down to dollars and cents. GAP insurance is just a tiny fraction of the total cost of your auto insurance, and it can wind up saving you a bundle. Typically, GAP insurance costs about 5 or 6 percent of your annual insurance premium, so if your existing collision and comprehensive costs are, say, $400 per year, GAP insurance will add just 20 bucks to your overall insurance costs [source: Gusner].

If you decide that you want to get GAP insurance, there are a couple of different routes you can take. If you buy a new car from a dealer, you can often get GAP insurance from the dealership, or you can get it through an insurance agency. However, not all insurance companies offer GAP insurance, and many of those that do will require you to already have collision and comprehensive coverage. GAP insurance is typically cheaper if you buy it through your insurance agency instead of getting it from the dealership [source: Crowe].

There are still a few things to consider: Only get GAP insurance as long as you need it. This is a no-brainer, but once you've signed on for a recurring payment, like insurance, it's often easy to continue making payments without considering whether you still need the service. For car owners, it only makes sense to have GAP insurance while you're still paying off the loan, and even then, you should probably only have it while you're still upside down on the car. So if you end up selling the car or paying off the loan faster than you originally expected to, don't forget to cancel your GAP insurance! And if you paid your whole GAP insurance premium up-front and you sell or refinance your loan, you should be entitled to get at least a partial refund [source: Caucutt].