Do I Need Gap Insurance? When It's Worth It

When investing in recreational vehicles like RVs, boats, or power sports cars, protecting your financial interests is just as important as protecting the asset itself. So, if you’ve recently invested in leasing or purchasing a recreational vehicle, boat, or powersport vehicle, you may be wondering, "Do I need gap insurance?" This is a common worry amongst new RV and vehicle owners, which is why we put together a comprehensive guide. In this guide, we’ll answer questions like how long gap insurance lasts, cover topics like total loss protection vs. gap, and more. Keep reading to learn more about gap insurance and to answer the question: Should I buy gap insurance for my fleet?

What is Gap Insurance?

Gap insurance covers the difference between the actual cash value (ACV) of your vehicle and the remaining balance on your loan or lease if it’s declared a total loss. Because vehicles like RVs, boats, and powersports can depreciate quickly, this type of insurance ensures that you won’t be stuck with a significant financial gap if something unexpected happens. You can purchase gap coverage through your insurance provider, dealership, or lender. However, adding it to your insurance policy is often more affordable.

How Depreciation Affects Recreational Vehicles

Just like cars, RVs and other recreational vehicles lose value quickly after purchase. For example, a new RV might depreciate by 20% or more in its first year. If your loan or lease balance exceeds the ACV, standard insurance will only cover the depreciated value, leaving you responsible for the remaining balance. Example: You financed a boat for $50,000. After an accident, your insurance values it at $40,000, but you still owe $45,000. Without gap insurance, you’d need to pay the $5,000 difference out of pocket. Gap insurance would cover that shortfall.

When Is Gap Insurance Worth It?

Gap insurance can be a smart investment if:

You financed or leased an RV, boat, or powersport vehicle.
Your loan term exceeds 60 months.
You made a small down payment (less than 20%).
You rolled over negative equity from a previous loan into your new one.
The vehicle depreciates faster than average.

If you owe less than the vehicle’s value or own it outright, gap insurance may not be necessary.

Cost of Gap Insurance

The cost of gap insurance depends on where you purchase it:

Insurance providers: Typically, adding gap coverage to your policy costs between $20 and $50 annually.
Dealerships or lenders: A one-time fee of $200 to $400 is common, but this cost is added to your loan and accrues interest.

For most RV, boat, and powersport owners, gap insurance is only needed for the first few years, until the loan balance falls below the vehicle’s ACV.

How to Purchase Gap Insurance

You can buy gap insurance from:

Your insurance company: The most cost-effective option, added to your existing policy.
The dealership or lender: Convenient but often more expensive, with added interest.

Note: To qualify for gap insurance, you’ll need full coverage on your vehicle, including comprehensive and collision insurance. Of course, you can always contact your Happy Camper insurance agent, who will be happy to explore and obtain the proper gap insurance coverage best suited for your needs.

Key Considerations for Recreational Vehicle Owners

RVs and Boats: Given their high depreciation rates, gap insurance can save you thousands if you experience a total loss.
Powersport Vehicles: ATVs, jet skis, and motorcycles also depreciate quickly, making gap insurance valuable for financed purchases.
Loan Duration: Longer loans often result in slower equity build-up, increasing the likelihood of being upside-down on your loan.

Total Loss Protection vs Gap Coverage

As for total loss protection vs gap, both help bridge the financial gap after a vehicle is declared a total loss, but they differ in scope and purpose. Gap coverage pays the difference between the actual cash value (ACV) of your vehicle and the remaining loan or lease balance. In contrast, total loss protection often provides a predetermined payout or replaces the vehicle with a similar one, covering depreciation more comprehensively. While gap insurance focuses on eliminating the debt shortfall, total loss protection ensures you can replace your vehicle without financial strain.

Should I Buy Gap Insurance? The Final Word

For RV, boat, and powersport vehicle owners, gap insurance provides an affordable way to protect against financial losses due to depreciation. By covering the gap between your loan balance and the vehicle’s value it ensures that your adventures can continue without financial stress. Ready to explore your gap insurance options? Contact Happy Camper Insurance today for tailored coverage that fits your needs and keeps your recreational dreams afloat.