Gap Insurance: What Providers Offer

Gap insurance, or guaranteed asset protection, is an optional form of financial protection for your vehicle. It covers the difference between the payout from a car insurance company and the amount you owe on your car loan at the time it is stolen or declared a total loss. This type of insurance is available from insurance companies, car dealerships, lenders/finance companies, banks, and credit unions. It is worth noting that gap insurance is not always necessary and is dependent on personal circumstances.

When to buy gap insurance

Gap insurance is an optional, additional type of car insurance that covers the difference between the amount still owed on a car loan or lease and the actual cash value of the vehicle if it is stolen or declared a total loss. This type of insurance is particularly useful if you have a long-term loan, made a low down payment, or have a car that depreciates quickly.

• When you have a long-term loan: Long-term loans almost guarantee that the car buyer will have negative equity for some period. The longer it takes to pay off a loan, the longer it takes for loan payments to catch up with the car's depreciating value.
• When you have made a low down payment: A small down payment results in a bigger gap between what you owe and the car's depreciated value. A low down payment and a long loan period delay equity in the vehicle.
• When you lease a car: Auto leases have lower monthly payments because the lessee pays less principal every month. Many leases include gap coverage automatically.
• When you have a car that depreciates quickly: Some cars depreciate much faster than others. For example, electric vehicles depreciate faster than other vehicle types, losing about half their value in five years. Luxury cars, such as the Maserati Quattroporte, BMW 7, and Maserati Ghibli, also depreciate quickly, losing over 60% of their value in five years.
• When you roll other products into your auto financing: Financing extended service agreements, dealer-installed options, or debt from previous auto financing increases what you owe without necessarily increasing the value of your car.
• When you have high mileage on your car: Driving more than 15,000 miles per year speeds up your car's depreciation.

It's important to note that gap insurance is not required by state law, but it may be required by lenders and lessors. Additionally, you can generally only add gap insurance to your policy if you still owe money on the vehicle or lease, and the car is not more than two to three years old.

Where to buy gap insurance

When buying a new car, you can purchase gap insurance from the dealer or your auto insurance company. It is worth noting that gap insurance is usually optional if you are financing a purchase but may be mandatory if you are leasing a vehicle.

Buying gap insurance from a dealer

When you buy or lease a car, the dealer will likely ask if you want to purchase gap insurance when you discuss your financing options. However, buying gap insurance from a dealer can be more expensive if the cost of the coverage is bundled into your loan amount, which means you would be paying interest on your gap coverage.

Buying gap insurance from an insurer

You can typically add gap coverage to an existing car insurance policy or a new policy, as long as your loan or lease has not been paid off. Buying gap insurance from an insurance company may be less expensive, and you won't pay interest on your coverage. If you already have car insurance, you can check with your current insurer to determine how much it would cost to add gap coverage to your existing policy. Note that you need comprehensive and collision coverage to add gap coverage to a car insurance policy.

In Texas, you can buy gap insurance either from an insurance company or through your dealership as a standalone policy. Not all insurers are authorised to offer gap insurance in Texas, but you can get quotes from your auto insurance company. Coverage directly from insurers is often less expensive—often around several dollars per month—particularly if the coverage is added to an existing policy. The following insurance companies are currently authorised to provide gap insurance coverage in Texas:

• American Modern Home Insurance Co.
• American National Property and Casualty Co.
• American Security Insurance Co.
• Balboa Insurance Co.
• Continental Casualty Co.
• Courtesy Insurance Co.
• Financial American Property and Casualty Insurance Co.
• First Colonial Insurance Co.
• Great American Insurance Co.
• Great American Insurance Company of New York
• Ironshore Indemnity Inc.
• Landcar Casualty Co.
• Lyndon Property Insurance Co.
• Markel Insurance Co.
• MIC Property and Casualty Insurance Corp.
• Old Republic Insurance Co.
• Old United Casualty Co.
• Securian Casualty Co.
• Sentruity Casualty Co.
• Service Lloyds Insurance Co.
• Spinnaker Insurance Co.
• State National Insurance Co.
• Transamerica Casualty Insurance Co.
• United Financial Casualty Co.
• Universal Underwriters Insurance Co.
• Work First Casualty Co.

How gap insurance works

Gap insurance, or guaranteed asset protection, is an optional form of financial protection that covers the difference between the amount you owe on your auto loan and the amount your insurance company pays out if your car is stolen or deemed a total loss.

Gap insurance is intended to cover the loss you would suffer if your loan balance is higher than the value of the vehicle. It is called 'gap' insurance because it covers the ''gap'' between what your vehicle is worth and how much you owe on your car at the time it is stolen or totalled.

For example, if your new car is stolen and is worth $25,000, but you still owe $30,000 on the car loan, you will be responsible for paying your insurance deductible (usually a few hundred dollars) and the remaining $5,000 on the loan. With gap insurance, you would only need to pay the insurance deductible. Gap insurance is designed to pay the remaining $5,000 so that you don't owe money on a totalled car.

Gap insurance is usually offered by car insurance companies, car dealerships, and auto loan lenders. It can be purchased as a standalone product or added to an existing insurance policy. It is important to note that gap insurance is not necessary if you do not have a car loan or lease, or if your loan is less than the value of your car.

The cost of gap insurance varies depending on the provider and your individual circumstances, but it typically ranges from a few hundred to a few thousand dollars. It is generally cheaper to purchase gap insurance from your car insurance company than from a dealer or lender. When considering gap insurance, it is important to compare prices and coverage options from different providers.

When to drop gap insurance

Gap insurance is a smart idea when you first get a car loan, but it becomes unnecessary once your car's value exceeds the balance of your loan. This is because gap insurance covers the difference between the current value of your car and the amount you still owe your lender if your car is stolen or totaled.

You can drop gap insurance when your loan amount drops below the car's value. This usually happens after about two years of payments. You can also drop coverage if you pay off your loan early or trade or sell the vehicle.

Before deciding to drop gap insurance, confirm your loan balance and the value of your vehicle. If your car is now worth more than the balance of your loan, you no longer need gap insurance. However, if the balance of your loan is more than the value of your car, keep the gap insurance. Since gap insurance pays the difference between what you owe and the value of your car, you may end up owing money if your car is totaled without it.

If you still want to drop gap insurance, contact your gap insurance provider, which is often a lender, car dealership, or car insurance company. A simple phone call should allow you to drop coverage, but make sure to double-check your statement in subsequent months to ensure the gap insurance has been removed.

When you purchase gap insurance through a dealership or lender, it's typically paid for upfront and lasts the life of your loan. If you cancel before your car is paid off, you should get a refund. If it's through a car insurance company, you'll see a reduction in your monthly payments or premium.

Cost of gap insurance

The cost of gap insurance depends on several factors, including your state, driving record, age, vehicle, and insurance company. On average, gap insurance costs $89 per year, but rates can vary from $20 per year to $700 per year.

Gap insurance is typically cheaper when purchased from an insurance company rather than a dealership. Insurance companies usually charge a few dollars a month or around $20 per year for gap insurance. In contrast, dealerships often charge a flat fee of around $500 to $700 for gap insurance, and this fee is subject to interest charges if rolled into your loan payments.

When considering the cost of gap insurance, it is important to remember that it is an optional coverage that protects you in case your vehicle is totaled or stolen and you owe more on your loan or lease than the vehicle's depreciated value. Gap insurance covers the "gap" between the amount reimbursed by your insurance company and the amount you still owe on your financing.

When deciding whether to purchase gap insurance, it is worth considering your down payment, loan term, vehicle model, and driving habits. If you made a small down payment, have a long-term loan, drive in a way that decreases your vehicle's resale value, or chose a model subject to quick depreciation, gap insurance may be a worthwhile investment.

Frequently asked questions