Does Gap Insurance Cover Engine Failure?

Key Points:

• Gap insurance is designed to cover the difference between your car’s value and what you owe on it in the event of a total loss. 
• If you’re concerned about engine failure, your best bet is to purchase an extended warranty or mechanical breakdown insurance (MBI).
• Gap insurance doesn’t come standard with most auto coverage policies–you’ll need to pay extra for it.

One of the most expensive breakdowns a car owner can have is engine failure. An engine that needs to be replaced can cost thousands of dollars, so you want to protect yourself and your finances if you can. But does gap insurance cover engine failure?

The simple answer is no, gap insurance doesn’t cover engine failure. We’ll get into the details below, including what gap insurance does cover and how you can take care of your car’s engine.

If you’re shopping for car insurance, make sure you read our article about the nation’s best car insurance companies and try our quote comparison tool. We always recommend getting quotes from at least three auto insurance companies so you can compare cost and coverage. Enter your zip code above for free, personalized quotes seven days a week.

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What Does Gap Insurance Cover?

Gap insurance sounds like something that would cover any gaps in standard car insurance, like engine failure, but it isn’t. This type of insurance pays the difference between your car’s actual cash value (ACV) and any payments you still owe on the vehicle. It can come into play after your car is totaled or stolen and you still have a loan with a bank. 

Consider the following example: You finance a Tesla Model X that costs $100,000 with $7,500 down. Three months later, your car is totaled by flooding. Luckily, you have comprehensive insurance to cover the damages, but assessors only give an ACV of $80,000, and you likely have more than that left on the car loan. After all, nothing depreciates quite like a car. In fact, Kelley Blue Book says that cars lose 20% or more of their original value within the first year of ownership, and about 60% within five years.

The discrepancy between what you owe and what your car is worth is known as negative equity. If you have gap coverage, that difference will be covered.

Other Types Of Car Insurance

Gap insurance doesn’t cover engine failure, so what does? Let’s take a quick look at the six standard types of auto insurance.

• Liability auto insurance: Pays for other drivers’ medical expenses when you’re at fault (bodily injury liability) and other drivers’ property damages when you’re at fault (property damage liability)
• Collision insurance: Covers damages to your vehicle after an accident, no matter who’s at fault
• Comprehensive car insurance: Pays for damages to your vehicle that result from non-collision events such as extreme weather, vandalism, or theft
• Medical payments: Covers medical expenses for you and your passengers
• Personal injury protection: Covers medical expenses, lost wages, and death benefits for you and your passengers in no-fault states
• Uninsured/underinsured Motorist: Covers you when you get into an accident with an uninsured or underinsured motorist who can’t pay for your injuries or property damage

Unfortunately, none of these auto insurance policies are likely to cover engine failure. If your engine is damaged during a car accident or extreme weather, you’ll be covered. But if it fails because of a defect or because it’s old and rusty, you won’t be covered by standard auto insurance.

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Car Warranties Vs. Mechanical Breakdown Insurance

Gap insurance won’t cover engine failure, and in many cases, your car insurance policy won’t either. But there are two types of coverage that will: car warranties and mechanical breakdown insurance.

Car Warranties

There are generally two types of warranties: powertrain warranties and bumper-to-bumper warranties. A powertrain warranty covers the components of your car that make it move, including the engine. Bumper-to-bumper warranties cover most everything else, but there are exclusions. In general, auto warranties are intended to cover mechanical failures due to defects or poor workmanship.

Most new vehicles come with a factory bumper-to-bumper warranty and a powertrain warranty. Mileage and term lengths vary, but a common powertrain warranty might cover you for 4 years or 50,000 miles. If you have a new car, your warranty is probably still in place.

After the factory warranty expires, you can purchase an extended warranty for cars. Extended warranties can be purchased from the manufacturer through dealerships or a third party. Conditions vary between providers and vehicles, but engine failure due to mechanical breakdown will almost always be covered by an extended powertrain warranty.

You can expect an extended auto warranty to function similarly to insurance. You pay a monthly or annual premium and may have a deductible.

Mechanical Breakdown Insurance

Mechanical breakdown insurance (MBI) covers mechanical repairs your car may need for any reason, including engine repair. MBI is usually more inclusive than a car warranty. 

Geico offers mechanical breakdown insurance, but it can only be purchased for cars that are fewer than 15 months old. Most MBI can only be purchased for newer vehicles. While MBI may offer broader coverage than the factory warranty, newer cars are less likely to have mechanical issues. Also, a 15-month-old car will still usually be covered by the factory warranty. If you want more coverage than the factory warranty offers, you may consider MBI. 

As with an extended warranty, you’ll probably have to pay an insurance deductible depending on your plan and car insurance provider.

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Gap Insurance: Our Take

Gap insurance doesn’t cover engine failure or other mechanical issues. If you own your vehicle outright and don’t owe a single car payment, there’s no reason to buy gap insurance. Even if you have an auto loan, gap insurance may not be worth it, but there are many circumstances in which it can be a good idea and save you money.

The less you owe on your car, the less you might consider gap insurance. Like cars themselves, the actual cash value of the car and the gap insurance policy depreciate with time. For owners of new vehicles, however, it can be a great investment.

Our Recommendations For Car Insurance

Whether you decide to purchase MBI or go with collision and comprehensive coverage, you can customize your car insurance coverage with a top insurer. Remember, cost is important in your decision, but it shouldn’t be the only factor. Get quotes from a few providers so you can compare car insurance coverage. Use the tool below to get started.

Geico Insurance: 4.5 Stars

If you want MBI, you can get it with Geico auto insurance, but that’s not the only reason to choose Geico. Geico is a full-service provider offering a range of coverage options. This includes standard offerings like comprehensive and collision coverage, and add-ons like roadside assistance and rental car reimbursement.

Geico has a financial strength rating of A++ from AM Best, so you can be confident that Geico will provide a payout when the time comes. The popular auto insurance company has low rates and many opportunities to save, and its DriveEasy app can be used to track your safe driving and reduce premiums.

USAA Insurance: 4.5 Stars

USAA car insurance has an AM Best rating of A++ and high customer satisfaction.

USAA is only available to military members and their families. If you qualify, going with USAA might be an easy choice. The USAA mobile app makes filing claims simple, and J.D. Power gives USAA very high marks for claims servicing.

Compare these two providers head to head in our USAA vs. Geico review.

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FAQ: Does Gap Insurance Cover Engine Failure?

Below are a few frequently asked questions about what gap insurance covers:

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How We Rate Auto Insurers

Our review team extensively researches auto insurance providers to deliver informed and unbiased assessments of leading companies. We evaluate several key rating factors that are important to consumers to determine which providers are the best in the industry:

• Reliability: It’s important that an auto insurer is able to meet its claims obligations. Companies with a strong financial strength rating from AM Best score best in this category. Established insurers with a long history of reliable service also receive positive marks.
• Availability: Insurance companies that offer wider availability to consumers in terms of state availability and few eligibility requirements are more likely to meet consumer needs.
• Coverage: To determine our coverage score, we look at the number of coverage options available as well as coverage limits and deductible options. Our ratings also take into account additional services and benefits like roadside assistance.
• Pricing: Cost can be difficult to compare between insurers because so many factors impact annual premiums. The cheapest insurer for one driver may not be the cheapest for another. To determine our cost score, we look at insurance rate estimates generated by Quadrant Information Services, discount opportunities, and consumer reports.
• Service: We comb through customer reviews on sites like the Better Business Bureau (BBB) to learn about customer experiences. Insurers with a low volume of complaints score well in this area. We also consider the claims process, giving higher ratings to car insurance providers that offer a smooth experience.
• Technology: Providers with an online quote tool, easy-to-use claims app and a usage-based insurance app score best in this category.

*Data accurate at time of publication.

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