Gap insurance in Texas

Written by

Edited by

Published on November 25, 2025 | 3 min read

Bankrate is always editorially independent. To help readers understand how insurance affects their finances, we have licensed insurance professionals on staff who have spent a combined 47 years in the auto, home and life insurance industries. While we adhere to strict , this post may contain references to products from our partners. Here's an explanation of . Our content is backed by Coverage.com, LLC, a licensed entity (NPN: 19966249). For more information, please see our . Our is to ensure everything we publish is objective, accurate and trustworthy.

Gap insurance in Texas, also known as guaranteed asset protection, helps cover the difference between what you owe on your car and its actual cash value (ACV) if it’s totaled or stolen. This optional coverage may be especially valuable for Texas drivers who recently financed or leased a new vehicle, helping them avoid significant out-of-pocket costs.

What is gap insurance in Texas?

Understanding gap insurance in Texas can be crucial for vehicle owners. It’s an optional coverage that offers financial protection in specific scenarios, often beneficial for those who have recently leased or purchased a new vehicle and hold the original loan or lease. This type of insurance can be particularly appealing for drivers with a front-loaded loan (where more interest is paid upfront) or who made little to no down payment.

Advertising disclosure

This advertisement is powered by Coverage.com, LLC, a licensed insurance producer (NPN: 19966249) and a corporate affiliate of Bankrate. The offers and links that appear on this advertisement are from companies that compensate Coverage.com in different ways. The compensation received and other factors, such as your location, may impact what offers and links appear, and how, where and in what order they appear. While we seek to provide a wide range of offers, we do not include every product or service that may be available. Our goal is to keep information accurate and timely, but some information may not be current. Your actual offer from an advertiser may be different from the offer on this advertisement. All offers are subject to additional terms and conditions.

Insurance disclosure

Coverage.com, LLC is a licensed insurance producer (NPN: 19966249). Coverage.com services are only available in states where it is licensed. Coverage.com may not offer insurance coverage in all states or scenarios. All insurance products are governed by the terms in the applicable insurance policy, and all related decisions (such as approval for coverage, premiums, commissions and fees) and policy obligations are the sole responsibility of the underwriting insurer. The information on this site does not modify any insurance policy terms in any way.

Compare auto insurance rates

Answer a few questions to see personalized rates from top carriers.

ZIP Code

Your information is kept secure

Advertising disclosure

Insurance disclosure

Advertising disclosure

Insurance disclosure

Compare auto insurance rates

Answer a few questions to see personalized rates from top carriers.

ZIP Code

Your information is kept secure

Advertising disclosure

Insurance disclosure

How does gap insurance work in Texas?

While gap insurance is widely available for new cars, used cars may also be eligible for coverage, provided they meet the guidelines. Typically, used cars must be no more than two or three model years old, have only one prior owner and still have low mileage.

When do you use gap insurance?

Gap insurance is designed for very specific situations. Primarily, it applies when your car is considered a total loss. This could happen due to a major accident, other damaging events like a fire or if your car is stolen and not recovered. Gap insurance does not apply to repair costs due to regular wear and tear or breakdown. Additionally, gap insurance does not apply in situations where the vehicle is not deemed a total loss. In that event, your comprehensive or collision coverage would apply.

Gap insurance made easy

In Texas, gap insurance covers the difference between the ACV claim payment from your auto carrier and the remaining balance on your lease or loan.

Loan balance – Car’s ACV = The “gap”

Example:

$25,000 (loan balance) – $18,000 (ACV after total loss) = $7,000 gap

Gap insurance may cover this $7,000 difference, saving you from having to pay this amount on your own.

Gap insurance vs other coverages

Texas gap insurance shares some similarities with other types of car insurance, and understanding the differences is crucial to ensure you have the right coverage for your needs. See how gap coverage compares to other coverage options:

Type of Coverage	What it covers	Availability
Gap Insurance	Covers the difference between your car’s ACV and the remaining balance on your car loan, if the loan amount is higher than the claim payout.	Available from many insurers, as well as car dealerships, banks and credit unions.
Loan/Lease gap coverage	Similar to gap coverage, but typically has a claim payout limit of $25,000 or 25% of the car’s ACV, whichever is less.	Available from many insurers, as well as car dealerships, banks and credit unions.
New car replacement coverage	Helps pay for a brand-new version of your totaled vehicle and is usually an additional coverage that kicks in after gap coverage pays the outstanding balance of your loan.	Available through some auto insurance carriers
Comprehensive coverage	Covers non-accident-related damage to your car, such as flooding, hail or vandalism.	A very common option provided by almost all insurance companies.
Collision coverage	Pays for repairs to your car after a collision, regardless of fault.	A very common option provided by almost all insurance companies.

How much is gap insurance in Texas?

While you may be hesitant to increase your car insurance rates by adding additional coverage to your policy, purchasing gap insurance through your insurance carrier may cost significantly less than at a dealership or and banking institution. According to the Insurance Information Institute, gap coverage costs average between $50-$150 per year with insurance companies, but can be 10 times more when bought elsewhere.

A noteworthy point under Texas law is that the cost of your gap coverage should not exceed five percent of your loan amount. This guideline could help you gauge the fairness of the pricing you encounter.

Additionally, it’s wise to compare offerings from your current car insurance provider and other insurance companies or financial institutions. While gap insurance isn’t a legal requirement in Texas, it’s often considered a smart choice for those financing a new or nearly new vehicle.

Frequently asked questions

No, gap insurance is not a legal requirement in Texas. While the state mandates certain types of auto insurance, such as liability coverage, gap insurance is optional. It is typically considered by those who are financing or leasing a new vehicle and are concerned about the potential financial gap if their car is totaled or stolen and they owe more on the loan than the car’s depreciated value. However, it’s always advisable to assess your individual financial situation and vehicle value to determine if gap insurance is a prudent choice for your circumstances.
Texas gap insurance is available at most dealerships through a third-party vendor or by the leasing or loan company. However, these policies usually have a higher purchase price and, since they are rolled into your financing, can really add up over time. Many big-name insurance carriers offer car insurance or loan/lease coverage as a coverage add-on at a lower rate. Some carriers with gap coverage options in Texas include:
- Associated Credit Union of Texas: You can either add gap coverage to your existing auto loan with ACU of Texas or opt for it during the loan application process. Refunds are available if the coverage is canceled within the first 60 days.
- Allstate: Allstate suggests this coverage for those who have paid less than 20 percent upfront for their vehicle, have auto loans extending 60 months or more or are leasing their vehicle.
- Greater Texas Credit Union: This credit union offers affordable gap insurance to its members, available up to 18 months from the start of the auto loan.
- USAA: USAA offers budget-friendly gap insurance as one of its many insurance options. If you belong to one of these categories, getting a quote from USAA for gap insurance could be a beneficial move.
- Texas DPS Credit Union: Its Gap Plus option includes standard gap coverage and deductible assistance in cases where your vehicle isn’t totaled. Additionally, it offers a $1,000 discount on your next loan with the credit union.
If you decide that you no longer need the coverage or if your financial situation changes, most gap insurance policies allow for cancellation. The process and terms for cancellation can vary depending on where you purchased the policy – whether from an insurance company, a dealership or a credit union. It’s important to review your policy’s terms or contact your provider for specific details about cancellation and potential refunds.
Owing more on your car than it’s worth, often referred to as being “upside down” or having “negative equity” in your car loan, can happen for a few reasons:
- Rapid depreciation: Cars typically lose value quickly. New cars, in particular, can depreciate significantly as soon as they’re driven off the dealership lot. This depreciation can outpace the rate at which you’re paying down the loan, especially in the early years of a long-term loan.
- Small down payment: A smaller down payment, or none at all, can lead to owing more than the car’s value. Since you’re financing a larger amount, if the car’s value drops faster than you repay the loan, you could end up in a situation where you owe more than the car is worth.
- Long loan terms: Longer loan terms can also contribute. With extended payment periods, the principal is paid down more slowly, increasing the period during which you might owe more than the car’s value.
- Rolling over old loans: Sometimes, when buying a new car, any outstanding balance from an old car loan is rolled into the new loan. This can instantly create negative equity in the new vehicle.
- High interest rates: If your car loan has a high interest rate, a larger portion of your monthly payment goes towards interest rather than reducing the principal balance, which can lead to a slower reduction in the amount you owe compared to the car’s depreciation.
Car insurance rates are based on a range of factors that are unique to you and your car, and because of this, a company that gives a great rate to your neighbor may not be able to do the same thing for you. To find the cheapest car insurance company for your circumstances, one tactic is to start with a list of companies known for writing inexpensive policies in Texas and ask several of them for quotes, so you can compare the rates. Be sure to ask each for the same levels and types of coverage so you can do an apples-to-apples comparison. Also make sure you are taking into account all discounts for which you might be eligible, as these can save you a significant amount of money on your policy.