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Senior Director, Media Relations, with Triple-I
30+ years of industry experience
Leadership positions at several trade organizations
Updated
Guaranteed asset protection — commonly known as gap insurance — covers the difference between your car’s value and what you owe on your lease or loan if you total it or someone steals it. Texas doesn’t require drivers to have gap insurance, but you may need it if you lease or finance your car.
Here’s everything you need to know about gap insurance in Texas.
Guaranteed asset protection insurance is usually optional coverage, but it’s often worth it if you drive a newer car.
Most lenders require you to have gap insurance if you finance or lease your car.
Adding gap insurance to your policy typically adds about $20 to your annual premium.[1]
Gap insurance is additional auto insurance that covers the difference between your car’s value and your loan or lease balance if someone steals your car or you total it in an accident.
A standard car insurance policy pays your vehicle’s actual cash value (ACV) if you get into an accident. The ACV is the current value of your vehicle, including depreciation. If your car’s AVC is less than the amount you owe on your loan or lease, you’ll have to cover the difference out of pocket.
For example, without gap coverage, if you have a $15,000 auto lease and your car’s ACV is $10,000, you’d have to pay $5,000 out of pocket if you total your car.
You may want to consider gap insurance if you finance your car with less than a 20% down payment. Since many vehicles depreciate by approximately 20% in the first year, you risk owing more than your car is worth if it’s stolen or you’re in an accident.
While gap insurance is optional, some lenders might require it.[2] But if your lender says it’s mandatory and it isn’t in your contract, you don’t have to purchase it.[3]
How long you need gap insurance depends on how much you owe on your lease or loan. It typically takes two years before you owe less than what your vehicle is worth.[4] If you owe more than the ACV of your car, you should consider keeping gap insurance.
Once your lease or loan balance is less than the value of your vehicle, consider dropping gap coverage. Since gap insurance is an optional add-on, you can cancel anytime.
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Gap insurance typically covers the difference between what’s left on your car loan or lease and the ACV of your vehicle. You can use gap insurance if your vehicle is stolen or totaled in a car accident.
Some companies that offer gap insurance won’t cover the cost of your deductible, while others will. For example, if your insurer doesn’t cover your $500 deductible and your gap insurance payout is $5,000, your total reimbursement would be $4,500.
Gap insurance doesn’t cover you in every situation. Below are some examples of things gap insurance doesn’t include.
Vehicle repairs and bodily injuries from an accident: Your gap insurance doesn’t cover damages, no matter who’s at fault.
Roll-over negative equity: If you roll over money from a previous lease or loan to a new one, your gap insurance won’t cover the negative equity.
Routine maintenance: Similar to a standard car insurance policy, your gap coverage won’t cover regular wear and tear on your vehicle. It also doesn’t cover any mechanical repairs.
Missed car payments: If you can’t work because of injuries you sustained in a car accident, your gap insurance typically won’t cover your missed car payments.
Make sure you review your policy to understand what your gap insurance coverage excludes.
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If you want to find cheap gap insurance in Texas, you should compare quotes from multiple companies before making a decision. Three of the most common ways to buy gap insurance in Texas include:
Some car dealerships include gap insurance as part of your lease or loan agreement. But you could owe more in interest over time if you buy gap insurance from a dealership and add the amount to your lease or loan.
Many major car insurers in Texas offer gap insurance as an endorsement to an existing auto insurance policy. Insurers typically offer gap insurance for up to 75% less than what it would cost as a standalone policy purchased through a car dealership, lender, or leasing company. Insurance companies that offer gap insurance protection in Texas include Allstate, Liberty Mutual, Travelers, Progressive, and Nationwide.
You can also purchase gap insurance through some banks and credit unions in Texas, including Greater Texas Credit Union, Education First Federal Credit Union, and Secured Advantage Federal Credit Union. This coverage will typically cost much more than purchasing it as an endorsement to your existing auto insurance policy.
Adding gap insurance to your collision and comprehensive coverage typically adds between $20–$100 annually to your premium. But the cost of gap insurance can vary based on where you purchase it. Gap insurance is usually more expensive through a car dealership, lender, or leasing company.
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Unlike minimum liability insurance, Texas doesn’t require drivers to purchase gap insurance. But you may need it as part of your contract with your lender or leasing company. You also may be able to get a refund for your gap insurance if you sell, refinance, or prepay your auto loan.
If you’re looking for more information on gap insurance in Texas, we’ve answered some commonly asked questions below.
Yes. You can cancel gap insurance at any time, according to the Consumer Financial Protection Bureau. But if your lender or leasing company requires you to have gap insurance, you need to check your contract to find out if you can cancel your coverage.
No. Gap insurance doesn’t pay off your loan. Gap insurance covers the difference between what’s left on your car loan or lease and the ACV of your vehicle if your car is stolen or totaled in an accident.
Review your loan agreement or contact your lender to find out if your gap insurance was rolled into your car loan.
If you don’t have gap insurance and you total your car, standard auto insurance will only pay for your vehicle’s actual cash value. You’ll have to pay the difference if you owe more on your loan or lease than your car’s ACV.
Gap insurance doesn’t cover you if your lender repossesses your car. Gap insurance only covers you if someone steals your car or you total it in an accident.
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Senior Director, Media Relations, with Triple-I
30+ years of industry experience
Leadership positions at several trade organizations
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