Your Guide to Gap Insurance in Canada

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Written By Alexandra Bosanac


What is gap insurance? 

Gap insurance is an optional car insurance coverage for drivers that are financing or leasing a car. The car loan lender or the dealership is the beneficiary of the settlement money.

‘Gap’ stands for 'guaranteed auto protection.' Gap coverage is useful when your car is declared a total loss or is stolen, and your insurance policy's limit isn’t high enough to cover the original sale price.

A car's value depreciates rapidly. As soon as you drive it off the lot, it loses an estimated 10% of its value. The amount you owe on your car loan stays the same, however. Buying the right amount of gap insurance will ensure you don’t own money on a car you can no longer drive and can walk away with a clean slate.

Gap insurance might be a good idea if you have a long-term car loan or are buying an expensive car. Terms of 60 months or more are increasingly common. However, some cars depreciate so rapidly that borrowers with long loan terms could end up owing more than their car is worth. More than 50% of customers who trade in their cars have negative equity, according to the Ontario Motor Vehicle Industry Council (OMVIC), the provincial vehicle sales regulator.

Gap insurance only applies when a car is declared a total loss. It does not cover partial damage.

When do you need gap insurance?  

People financing or leasing a new car (i.e., the model year is three years old or less) are often advised to buy gap insurance.

Here are some other instances in which you should consider gap insurance:

  • You’re financing a car with a loan of 60 months or more.
  • You made a small down payment or didn’t make one at all.
  • You’re buying an expensive or luxury car.
  • Your auto loan was rolled into a new one.

Most people buying a used car don't need gap insurance since used ones have already sufficiently depreciated in value. Therefore, loan amounts don't usually exceed the car's replacement value.

Gap insurance is a requirement for many car lease agreements. If you're leasing, you may already have gap insurance, but confirm with your dealer before you enter a contract.

How does gap insurance work?

Here’s a scenario to illustrate how gap insurance works and how it can protect your finances.

Say you've just secured the financing on a 2022 Audi Q5 crossover SUV with a dealership.

  • The MSRP on this Audi model is $54,700
  • Your down payment is $10,000
  • Your loan term is 84 months (seven years)

All is well until two years in have an accident, and your car is declared a write-off.

At this point in your loan agreement:

  • You still owe $43,949.04
  • But due to depreciation, your Audi is now worth $33,500, according to the Canadian Black Book

Without gap insurance, you’d be on the hook for about $10,450 to your lender. However, with insurance, you won’t have to pay out of pocket to settle your car loan.

How much does gap insurance cost? 

The cost of gap insurance depends on the type of vehicle you're buying it for. The more a car is worth, and the larger the loan, the more gap insurance will cost.

Gap insurance may increase your premium between $350 to $800, according to Edmund's, a U.S.-based car-buying website.

Buying gap coverage from an insurance provider rather than a dealership is often cheaper, but not all insurers provide it.

What is not covered by gap insurance? 

Gap insurance only kicks in once if the car is declared a total loss or stolen. It doesn't cover partial damage to a car and won't pay for routine maintenance.

What's the difference between a waiver of depreciation and gap insurance? 

Gap insurance and depreciation waivers offer similar coverage. Talk to an insurance professional to see which suits you best.


  • Both are for new cars (three years or less).
  • Both are temporary coverages (insurers usually remove them after three years, as your car has sufficiently depreciated in value).


  • Gap coverage is essentially car loan insurance; the benefit pays the balance if the loan amount exceeds the car's depreciated value.
  • A waiver of depreciation isn't just for car loans. Anyone can purchase it. It ensures that your insurance provider will pay the replacement value if your new car is stolen or damaged beyond repair in a total loss accident.

Frequently asked questions about gap insurance in Canada 

We answer more questions about gap insurance.

What is the most gap insurance will pay?

Gap insurance will only cover the difference between your policy limit and the outstanding loan amount.  The exact amount depends on the car's sale price, the down payment, and loan amount.

Is gap insurance mandatory in Canada?

While technically an optional product, there are some situations in which gap insurance is required.

Gap insurance is occasionally mandatory if you have a car loan or are leasing your car (just as collision and comprehensive insurance are often mandatory under such contracts). Even if a lender or dealer does not require it, gap insurance is still a good idea, as it can prevent future debt.

Speak with the insurance professional arranging your new vehicle's base policy. They can provide an expert opinion on whether it makes sense for your circumstances.

Some insurance companies offer gap insurance to everyday policyholders, but it's common for dealerships or lenders to provide it.

Get the lowest rate on car insurance to save money on gap insurance with RATESDOTCA.

Back in the day, comparing car insurance quotes was a time-consuming chore that involved calling several insurance companies one by one and starting from scratch each time. Thankfully, technology has made comparing insurance companies much easier.

With more than 50 providers in the RATESDOTCA virtual marketplace, we'll match you with quotes from Ontario's top insurance companies.

After you review your quotes, we'll connect you with the insurance provider offering your lowest rate. The insurance professional you speak with can help you add gap insurance to your policy.

Our service is free, and drivers who use RATESDOTCA save an average of $772.*

*Shoppers who obtained an auto insurance quote on RATESDOTCA and transacted via our contact centre from January to December 2022 saved an average amount of $800. The average savings amount represents the difference between the shoppers’ average lowest quoted premium and the average of the second and third lowest quoted premiums generated by RATESDOTCA.

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