What Is Gap Insurance in Michigan? Do You Need It? Is It Required?

What Is Gap Insurance in Michigan?

If you’re buying or leasing a new car in Michigan, you’ve probably heard about gap insurance—but what exactly is it, and do you need it?

Gap insurance, also known as loan or lease gap coverage, is designed to cover the “gap” between what your car is worth and what you still owe on your auto loan or lease. It kicks in if your car is totaled in an accident or stolen, and your standard auto insurance payout isn’t enough to pay off your remaining balance.

How Does Gap Insurance Work?

Let’s say your vehicle is involved in a serious accident and declared a total loss. Your standard auto insurance will typically pay out the actual cash value (ACV) of the vehicle—which may be much less than what you still owe, especially in the early years of financing or leasing.

This is where gap insurance becomes valuable. It pays the difference between the ACV and the remaining loan or lease balance, so you’re not left making payments on a car you no longer have.

Do You Need Gap Insurance in Michigan?

Gap insurance is not required by Michigan law, but there are situations where it’s highly recommended:

Leasing a vehicle – Most lease agreements actually require gap coverage.
Financing with a low down payment – If you put little money down, it’s likely you’ll owe more than your car is worth for a while.
Buying a car that depreciates quickly – Many new vehicles lose significant value the moment you drive off the lot.

Gap insurance is especially helpful in the first few years of ownership, when depreciation is highest and the risk of owing more than the car’s value is greatest.

Is Gap Insurance Expensive?

Gap insurance is usually quite affordable, especially compared to the financial risk of not having it. Rates can vary depending on your insurer and vehicle, but it’s often just a few extra dollars per month when added to your existing auto policy.

You can purchase gap coverage:

Directly through your auto insurance company
Through the dealership (although this is usually more expensive)
As part of a lease or loan agreement

Should You Add Gap Insurance to Your Auto Policy?

If you’re leasing or financing a car in Michigan and any of the above situations apply to you, gap insurance can be a smart financial decision. It’s not required, but it can save you thousands in the event of a total loss.

Before you decide, speak with a local Michigan insurance agent who can walk you through your options and make sure your policy is structured the right way.

Need help reviewing your auto insurance coverage in Michigan?

We’re here to help you get the protection you need—without overpaying. Contact us today to review your policy and find out if gap insurance makes sense for you.