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Last updated: January 25, 2025
Guide to Gap Insurance in Pennsylvania
If you got a loan or a lease for your vehicle, you’ll need gap insurance.
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When it comes to car insurance, Pennsylvania requires only liability coverage and medical payments coverage, with limits of $15,000 per person and $30,000 per accident under bodily injury, $5,000 for property damage coverage, and $5,000 for medical benefits. However, if you financed or leased your vehicle, your loan provider or lessor may also require you to carry gap insurance as part of the agreement. Even if it’s not mandatory, gap insurance is still wise, especially if you made a small down payment or purchased a vehicle that depreciates rapidly. Let’s take a closer look at what gap insurance is and the various ways you can acquire it.
What Is Gap Insurance?
Gap coverage is a type of insurance that would cover the remainder of your lease or loan if your vehicle was stolen or totaled, which in Pennsylvania, means that its salvage value is less than the cost of the repairs.1 In other words, if you totaled your car, you wouldn’t be responsible for paying the remainder of the lease or the loan; instead, your gap insurance would kick in.
What It Covers
- Loan or Lease Payoff Difference: If your car is totaled, your insurance pays out the car’s actual cash value (ACV) minus your deductible. Gap insurance covers the difference between what your insurance pays and what you still owe on your lease or loan.
- Negative Equity Protection: Offers financial protection in the event you owe more on your car loan than the car is worth, a situation called being “upside down” or “underwater” on your loan. This often happens due to depreciation, especially with new cars that lose value rapidly after purchase.
- Lease-End Obligations: Covers early termination fees if your vehicle is totaled before your lease period ends.
FYI:
Certain types of cars, including luxury cars and electric vehicles, depreciate more quickly than others. EVs depreciate faster because their batteries naturally degrade over time, and newer models with better features and technology often make older ones seem outdated.
What It Doesn’t Cover
- Deductible: Gap insurance in Pennsylvania usually does not cover your deductible. Some gap insurance policies offered at dealerships will pay your primary insurance policy’s deductible, but gap insurance purchased from a dealer is typically more expensive. Occasionally your insurer will cover the deductible; ask your agent to see what’s included.
- Missed loan payments or late fees: Gap insurance does not cover missed car loan payments or any late fees associated with those payments. If you fall behind on your car loan, you’ll be responsible for catching up on payments, and any penalties incurred will remain your responsibility, even in the event of a total loss.
- Total losses from mechanical failures: Gap insurance does not apply to total losses caused by mechanical failures or other non-accident-related issues, such as engine failure or wear and tear. These issues are typically excluded from standard auto insurance policies as well, so repairs or losses from mechanical problems would need to be addressed through separate coverage or out-of-pocket expenses.
- Bodily injuries and related costs, such as funeral costs, lost wages, or medical expenses: These are typically covered under Personal injury protection (PIP) or medical payments protection.
- Property damage: Gap insurance does not cover property damage to other vehicles, objects, or structures caused by an accident. These costs are covered under the property damage liability portion of your standard auto insurance policy, up to your chosen limits.
How Gap Insurance Works for Financed or Leased Vehicles
Imagine you bought a new car with a $40,000 loan and gap insurance. A month later, your car is totaled in an accident. The repair cost is $20,000, but the car’s salvage value is only $10,000. In Pennsylvania, if a car’s salvage value is less than the repair cost, it’s considered totaled.
This is where your gap insurance comes in. Since your car is new and totaled just a month after purchase, its ACV is still close to the purchase price, minus, let’s say, about 10 percent depreciation. That means the ACV would be around $36,000. If you have a $1,000 deductible, your collision coverage would pay $35,000 ($36,000 minus the deductible), and your gap insurance would cover the remaining $5,000 of the loan balance, ensuring you’re not stuck paying out-of-pocket for the difference.
Let’s take a look at this example illustrated below:
| Item | Amount | Explanation |
|---|---|---|
| Original loan amount | $40,000 | The amount borrowed to purchase the car |
| Actual Cash Value (ACV) after 10% depreciation | $36,000 | The vehicle’s value at the time of the accident |
| Deductible for collision | $1,000 | The amount you pay out-of-pocket before collision coverage kicks in |
| Collision coverage payout | $35,000 | Your collision coverage minus the deductible |
| Loan balance remaining | $5,000 | The difference between the original loan amount and your insurance payout |
| Gap insurance coverage | $5,000 | Gap insurance pays off the remaining loan balance that the collision payout didn’t cover |
| Your out-of-pocket expense | $1,000 (deductible) | You are only responsible for the deductible amount |
NOTE:
If you want insurance to replace the totaled car, you’d need new car replacement coverage in addition to gap insurance.
The Cost of Gap Insurance in Pennsylvania
In Pennsylvania, gap insurance costs around $200 to $700 per year. It’s most affordable if you buy it as an add-on to your existing car insurance and more expensive if you buy it from your car’s manufacturer, your dealership, or your lender. Credit unions tend to offer better terms than dealerships or banks.
| Cost of Gap Insurance by Provider | Minimum Cost Per Year | Maximum Cost Per Year |
|---|---|---|
| Manufacturer | $200 | $700 |
| Dealership/lender | $500 | $700 |
| Add-on to existing policy | $20 | $60 |
You can get a sense of how much you might pay for gap insurance below.
| Cost of Gap Insurance by Auto Insurance Carrier | Estimated cost per year |
|---|---|
| Bristol West | $267 |
| Clearcover | $149 |
| Dairyland | $242 |
| Direct General | $223 |
| Erie | $120 |
| Liberty Mutual | $220 |
| Midvale Home & Auto | $189 |
| Plymouth Rock | $170 |
| Progressive | $139 |
| Travelers | $131 |
Laws
As of 2025, no state mandates the purchase of gap insurance. In Pennsylvania, drivers are required to carry liability and medical payments coverage. However, while gap insurance isn’t required by state law, it can be a valuable addition to protect you financially, and your lender may require it.
TIP:
How Much Do You Need?
The “amount” of gap insurance you have isn’t something you necessarily choose; the coverage is designed to automatically cover the difference between your car’s ACV and the balance remaining on your loan or lease. However, some companies like Progressive may cap gap insurance coverage at a specific limit, such as 25 percent of the ACV. This means that if the gap between your loan and your car’s value exceeds this percentage, you’ll be responsible for the remaining balance. It’s a good idea to check with your insurance provider to understand their specific coverage limits.
Is It Worth It?
If you owe more on your car than it’s worth, gap insurance is worth it. Furthermore, if you’re financing or leasing a car, your lender or leasing company will likely require it as part of your agreement, along with collision and comprehensive coverage, to protect their investment. Even if it’s not required, gap insurance is a smart choice if your car is likely to depreciate quickly or if you made a small down payment.
Who Should Buy Gap Insurance
You should buy gap insurance if …
- You are leasing your vehicle.
- You owe more on your car than it’s worth.
- You put down less than 20 percent when you financed your car.
- Your financing term is five years, or 60 months, or longer.
- You rolled over negative equity from an old car loan into your new car loan.
- Your vehicle is a luxury car or electric vehicle, which depreciates faster than average.
FYI:
Check your car’s actual cash value (ACV) on websites like the Kelley Blue Book2 and Edmunds.3 If your car’s ACV is less than your loan balance, you are underwater on your loan or have negative equity.
Who Should Not Buy Gap Insurance
You do not need gap insurance if you own your car outright.
You may not need need gap insurance if:
- You put down more than 20 percent when you financed your vehicle.
- You own a car that tends to hold its value over time.
- Your loan is less than five years long.
How to Get Gap Insurance
Here’s how to find the best gap insurance.
When to Get It
Make sure to get gap insurance before you drive your financed or leased vehicle, as you can total it at any time.
Options
Your main options for getting gap insurance are as follows:
- As an add-on to your existing auto insurance policy
- Through the manufacturer or lender
- Through a car dealership
Again, if your insurance company offers it, it’s cheapest to get gap insurance from your existing insurer. Request a car insurance quote today.
Best and Cheapest Companies
Some companies that offer gap insurance in Pennsylvania include:
- Amica
- Allstate
- Bristol West
- Dairyland
- Direct General
- Erie
- Liberty Mutual
- Midvale Home & Auto
- Nationwide
- Plymouth Rock
- Progressive
- The Hartford
- Travelers
Recap
There are many advantages to paying for your car with an auto loan or leasing your car on a short-term basis. However, one disadvantage is that you may be required to purchase additional insurance coverage. Pennsylvania laws don’t require gap coverage, but lenders and leasing companies typically do require it, along with comprehensive and collision coverage. Even if gap insurance is not required, it can be a valuable addition, ensuring you will not be left paying out of pocket if your car is totaled or stolen.
Gap insurance is most cost-effective when purchased through your existing insurance provider, rather than a manufacturer or dealership. Insurance providers typically offer gap coverage for as little as $25 a year, a significant savings compared to dealerships, where costs can range from $500-$700 annually. If your insurer does not offer gap insurance, credit unions typically offer better terms than dealerships or banks. A number of companies, Erie, Progressive, Travelers, and others, offer gap coverage in Pennsylvania.
Car insurance for leased vehicles comes with stricter insurance requirements than vehicles bought outright. Because the lessor owns the vehicle, they will typically require additional coverage, like gap coverage, to protect their property and ensure they recover the car’s full value in the event of a total loss.
Senior Writer & Editor
A seasoned journalist and content strategist with over 10 years of editorial experience in digital media, Aliza Vigderman has written and edited hundreds of articles on the site, covering everything from plan coverages to discounts to state laws. Previously, she was a senior editor and industry analyst at the home and digital security website Security.org, previously called Security Baron. She has also contributed to The Huffington Post, SquareFoot, and Degreed. Aliza studied journalism at Brandeis University.
Citations
Total Loss Threshold by State. Appraisal Engine. (2017, Aug 12).
https://totallossappraisals.com/total-loss-threshold-by-state/My Car’s Value. Kelley Blue Book. (2023).
https://www.kbb.com/whats-my-car-worth/How much is my car worth: Instant used car value and trade in value. Edmunds. (2023).
https://www.edmunds.com/appraisal/
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