Cnac: Gap Insurance Included?

Gap insurance, or guaranteed asset protection, is an optional coverage that pays the difference between what your vehicle is worth and how much you owe on your car loan at the time it's stolen or totaled. It covers the gap between an auto insurance claim payout and your remaining loan balance if your car is declared a total loss or stolen and unrecoverable. It is designed to help when a vehicle is totaled and the owner still owes money on their car loan. It may be beneficial in situations when the payout from a collision or comprehensive coverage claim doesn’t cover the remaining balance on the loan.

What is gap insurance?

Gap insurance, or Guaranteed Asset Protection insurance, is an optional form of financial protection for drivers. It covers the difference between the amount owed on a car loan and the car's actual cash value (ACV) in the event of a total loss. This can occur when the car is stolen or damaged in an accident.

For example, if you owe $25,000 on a car loan and your car is only worth $20,000, gap insurance will cover the $5,000 difference, minus your deductible. This type of insurance is especially important for drivers who owe more on their car loan than the car is worth.

Gap insurance is typically only available for brand-new vehicles or models less than three years old. It is also generally more expensive to purchase from a dealership than from an insurer. Some lenders and leasing companies may require it, and it is often bundled with a car loan, increasing the total amount of interest paid over time.

While standard auto insurance policies cover the depreciated value of a car, gap insurance ensures that the full amount of the loan is covered in the event of a total loss. This can provide peace of mind and financial protection for drivers, especially those with newer vehicles.

When to Consider Gap Insurance

When considering whether to purchase gap insurance, there are several factors to keep in mind. Firstly, if you owe more on your car loan than the car is currently worth, gap insurance can help protect you from negative equity. This is common if you made a smaller down payment, typically less than 20%, on a new car.

Secondly, if your car loan or lease agreement requires gap insurance, you will need to purchase it. Some lenders and leasing companies mandate it as a protective measure.

Thirdly, if you have a longer financing term for your vehicle, gap insurance may be worth considering. The longer the financing term, the higher the chance of owing more on the vehicle than it is worth.

Finally, if you want protection against depreciation, gap insurance can help. Some cars depreciate faster than others, and gap insurance can safeguard against owing more than the car's value.

How to Purchase Gap Insurance

Gap insurance can be purchased from lenders, dealerships, or directly from insurance companies. However, it is generally more cost-effective to buy it through an insurance company, as purchasing it from a dealership may result in paying interest on the gap coverage.

While gap insurance is not required by any state or insurer, it can provide valuable financial protection in the event of a total loss of your vehicle. It is important to weigh the costs and benefits to determine if gap insurance is right for your specific circumstances.

When is gap insurance worth it?

Gap insurance is a type of auto insurance coverage that is designed to cover the difference between the amount owed on a car loan and the car's value in the event of a total loss or theft. This type of insurance is particularly relevant for new vehicles, which can depreciate rapidly in the first year of ownership, leaving the owner with negative equity.

Gap insurance is generally worth it in the following situations:

• When you have a small down payment: If you make a small down payment on your car, the amount you owe in car payments can quickly exceed the car's value. In this case, gap insurance can protect you from having to pay the difference.
• When you have a long finance period: The longer the finance period, the more likely it is that you will owe more on the loan than the car is worth. Gap insurance can provide valuable protection in this scenario.
• When you purchase a vehicle that depreciates quickly: Some vehicles depreciate faster than others. If you purchase a vehicle that is expected to depreciate quickly, gap insurance can help ensure you don't end up owing more than the car is worth.
• When you lease a vehicle: Leasing a vehicle typically requires gap insurance as a protective measure. Gap insurance can provide valuable peace of mind for leaseholders.
• When your car loan requires gap insurance: Some loan providers require gap insurance from the outset of the loan. In this case, purchasing gap insurance is a necessary step in securing your financing.

Overall, gap insurance is worth it when you are at risk of having negative equity in your vehicle, either due to depreciation, a long finance period, or a small down payment. By purchasing gap insurance, you can protect yourself from having to pay the difference between the amount owed on your loan and the car's value in the event of a total loss or theft.

How much does gap insurance cost?

The cost of gap insurance depends on where and how you buy it. If you buy gap insurance from a dealership, it can cost hundreds of dollars a year. Dealerships and lenders charge higher prices for gap insurance than car insurance companies. Lenders and dealerships sell gap insurance for a flat rate, typically between $500 and $700, which are the highest rates for this type of policy. Plus, you will pay interest on the sum since it will be rolled into your loan.

Insurance companies, on the other hand, charge an average of $20 to $40 per year for gap insurance when buyers bundle it into an existing insurance policy. This only increases your comprehensive and collision insurance cost by about 5 to 6% on average, making it a lot more affordable. If you want to buy a standalone gap insurance policy, you can expect to pay between $200 and $300.

The cost of gap insurance can also vary depending on individual factors, like your car's value. Factors that can affect the cost of gap insurance include the vehicle's actual cash value (ACV) and auto insurance claims history.

If you add gap coverage to a car insurance policy that already includes collision and comprehensive insurance, it typically increases your premium by around $40 to $60 per year.

Where can I buy gap insurance?

When buying a new car, you can purchase gap insurance from the dealer or your auto insurance company. While gap insurance is usually optional if you're financing a purchase, it might be mandatory if you're 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 auto insurer

You can typically add gap coverage to an existing car insurance policy or a new policy, as long as your loan or lease hasn't 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 the cost of adding gap coverage to your existing policy. Note that you need comprehensive and collision coverage to add gap coverage to a car insurance policy.

Where to buy gap insurance in Texas

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, so it's recommended to first get quotes from your auto insurance company. Coverage directly from insurers is often less expensive and can be 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.

Where else to buy gap insurance

Some other providers of gap insurance include:

• Associated Credit Union of Texas
• Allstate
• Greater Texas Credit Union
• USAA
• Texas DPS Credit Union

When should I cancel gap insurance?

Gap insurance is not a mandatory type of insurance and can be cancelled at any time. However, it is important to review your policy before cancelling as some providers may charge a cancellation fee. You may also be entitled to a refund for any months of coverage already paid for.

There are several instances in which it makes sense to cancel your gap insurance:

• When your loan balance is less than your vehicle's value: Gap insurance is only valuable when you owe more than what your car is worth. If your car's value is greater than the remaining loan balance, you are paying for coverage that you will never use. In this case, it no longer makes financial sense to keep paying for gap insurance.
• You decide to sell your car: If you sell your car, you will no longer need gap insurance as the coverage is specific to the insured vehicle.
• You need to lower your insurance premiums: If you are looking to save money, you may decide to cancel your gap insurance as it is not a legally required coverage.
• You paid too much for coverage: If you find that you are overpaying for gap insurance, you may want to switch to a new provider or cancel the coverage altogether.

Frequently asked questions