Gap insurance in Arizona

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You may have heard about gap insurance for the first time from a friend, car dealer or insurer. It is well-known that the minute you drive a new car away from a dealership, it depreciates significantly in value, then continues to depreciate over time. The best car insurance companies may explain upfront when you inquire about a policy quote whether or not gap insurance can protect you financially in the event of a total loss to your vehicle. Understanding how gap insurance works, what purpose it serves and how it can provide additional financial protection may help you decide whether this could benefit you.

What is gap insurance?

Gap insurance coverage is designed to fill the “gap” between your insurance payout for a total loss and the outstanding balance on your loan. While your comprehensive or collision coverage provides payout for the actual cash value of your vehicle when counted as a total loss (from a variety of causes, such as a serious accident, natural disaster, fire or the theft of a vehicle) that can sometimes be insufficient to pay off the outstanding balance on your car loan.

In Arizona, gap insurance will close that gap when you find yourself “upside down” with your loan. This can happen with any car loan, but occurs most frequently with newer or specific makes and models of vehicles that depreciate rapidly.

How does gap insurance work in Arizona?

Gap insurance is intended to address very specific situations in which you are left with more owed on your car than what you receive in a car insurance payout. In Arizona, gap coverage is typically available only when you buy a very new car, no more than a model year old in most cases.

Gap is not an add-on that covers a variety of losses, such as the cost to rent a vehicle while repairs are being made or you are waiting for a replacement vehicle. Gap also does not cover costs relating to a loss such as medical costs, repair costs or third party liability claims.

When do you use gap insurance?

Gap insurance applies only in situations where there has been a total loss to a vehicle. The most common cause is a serious single or multiple car accident which totals your vehicle. However, the loss can also be caused by other covered perils, such as theft without recovery. Your gap coverage amount will depend on the actual cash value of your car at the time of loss, and the amount of an outstanding loan on that vehicle.

For example, assume you purchased your vehicle new for $25,000 and since the purchase the car has depreciated and is currently valued at $17,000. You financed the purchase and currently still owe $20,000. If you are in an accident and your car is totaled, you are still required to pay off the loan, but the insurance proceeds (minus your deductible) will leave you owing $3,000, which you would need to pay out of pocket unless you have gap coverage.

Gap insurance vs other coverages

Typically, a person who wants the most robust coverage for a vehicle will purchase a policy with three basic coverages: liability, collision and comprehensive coverage. Each coverage protects you (or others) from a specific type of damage or injury, in the event of an accident or another form of covered loss. Gap insurance is separate from these coverages and typically is not automatically included in a standard auto insurance policy.

Gap insurance Comprehensive Collision
What it covers The difference between an outstanding loan on a vehicle and the insurance proceeds paid on a total loss. This pays for necessary repair or replacement when the insured vehicle is damaged by any peril other than an accident. The cost of repair or replacement of a vehicle caused by an automobile accident.
Who offers it In Arizona, gap insurance can be purchased from your insurance company or the car dealer/lender who financed a loan for the vehicle. Comprehensive coverage is optional but a wise addition to add to your policy with your car insurer. Collision coverage is included as a standard part of your car insurance policy offered by your insurer.

Where to buy gap insurance in Arizona?

The best car insurance companies in Arizona typically offer gap insurance, and often, at affordable prices. Dealers and lenders (such as credit unions) also often provide gap coverage in conjunction with a car loan, but you may find that the cost is higher than that charged by insurers. If the premium is wrapped into the loan, you will likely pay additional interest as well. However, this may be preferable to drivers who find it more convenient to bundle gap insurance with their loan.

Gap insurance companies in Arizona

A few of the largest car insurance companies and others who can sell you gap coverage in Arizona include:

  • Allstate — Allstate offers gap coverage protecting new vehicles as well as certain used vehicles that are newer and in good condition. Loan amounts up to $50,000 can be covered by Allstate’s gap insurance In Arizona.
  • State Farm — State Farm’s answer to gap coverage is “Payoff Protector.” This coverage protects against the same risk as gap coverage, in that a total loss payout will be less than the balance on a loan. Payoff Protector is only available on otherwise insured vehicles which are financed through State Farm Bank.
  • The Hartford — Hartford offers gap insurance as an option to add to its standard car insurance policies. According to the Hartford, this coverage pays “the difference between your car’s Actual Cash Value (ACV) and the amount you owe on the loan, if it’s stolen or totaled.”
  • NationwideNationwide offers gap insurance with the limitation that a policyholder remains responsible following a loss for paying the policy deductible. This is important to know when determining the deductible value you want to include with your car Insurance policy.
  • Arizona Federal Credit Union — This credit union’s “Guaranteed Asset Protection” plan pays the difference between what your car insurance company pays and what is still owed your car loan, pays your deductible and gives a credit toward a replacement vehicle.

Frequently asked questions

How much is gap insurance?

In Arizona, car insurance companies, dealers and financing companies sell gap insurance. Look first to your car insurance company to understand options and see if rates are more competitive for you to add to an existing policy rather than purchasing separately.

Is gap insurance required in Arizona?

No, you are not obligated to have gap insurance in Arizona. The law only requires that certain minimum limits are in place to protect others who are injured or incur property damages due to your driving. Because of the potential financial risk however, it can be a useful coverage to provide additional financial protection.

Can I cancel my gap insurance coverage?

Yes, gap coverage can always be cancelled. The question you need to ask when you consider this is what level of risk you will be taking on without it. Also, you typically can receive a prorated refund for amounts already paid but be certain before you cancel.

Written by
Rick Hoel
Insurance Contributor
Rick Hoel is an international business attorney and legal and insurance writer for Bankrate.com, Reviews.com and Accessibility.com. Over the last several years, he has covered topics dealing with personal and commercial insurance and technology and the law. Rick is General Counsel and Director of Risk Management and sits on the Board of Power Stow Americas Inc., a subsidiary of Power Stow A/S in Denmark, the world leader in the supply of tracked conveyor systems to the airline industry.
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