While it goes by many names — such as debt cancellation insurance or auto loan and lease coverage — gap insurance in Texas has a simple purpose: to protect you from financial consequences if your car is stolen or totaled and you owe more on it than the assessed value. If you have a car insurance policy on a new vehicle, you may have heard of it when applying for your policy or perhaps your lessor recommended it.

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What is gap insurance?

Gap insurance is an optional car insurance coverage that can help pay off your auto loan if your car was totaled or stolen. Gap coverage generally applies to new or leased vehicles only, and this type of coverage is typically only available if you’re the original loan- or leaseholder on a new vehicle. While gap coverage is optional, it is often a good choice if you’ve financed a new car with a high loan-to-value ratio.

Gap insurance in Texas works is used to help to pay the gap between the depreciated value of your car and what you still owe on the car. For example, if you total your car and still owe $20,000 in total on the financing for your vehicle, but your car is only worth $15,000, you have a $5,000 gap. If you’re financing your car and have gap coverage, your gap insurer pays the $5,000 “gap” between what you owe and what your full coverage car insurance policy pays for the value of your vehicle.

How does gap insurance work in Texas?

There are a few other factors to be aware of when buying gap insurance Texas. First, it is generally only available for newer cars — you will only be able to purchase gap insurance if your car is brand new or a year or less in age. It is a misconception to think that you can buy gap insurance for any vehicle that you’re financing for more than the car is worth, no matter how old it is.

Gap coverage is different from new car replacement coverage, although that type of coverage is also only available for newer cars. New car replacement coverage, as the name suggests, will pay the costs associated with purchasing a new model of your current car if it is totaled in an accident. Gap insurance has nothing to do with helping you buy a new car — it is only concerned with helping you to pay off your loan for the totalled vehicle.

When do you use gap insurance?

If you are in an accident and your car is damaged but not totaled, you cannot use gap insurance to pay the costs of repair, no matter how high they are. Gap insurance companies will only pay out if the car is a total loss. This can be either because of a serious accident or other mishap, such as a fire, or if the car is stolen and not recovered.

So if your Sierra is parked and a tree falls on it, you may use your gap coverage to pay off the loan if the insurance adjuster determines it’s a total loss, and if you owe more than the car’s value. If, on the other hand, the fallen tree does $5,000 worth of damage, but it is fixable, you would pay for that with your comprehensive coverage if you have it, not with gap insurance.

Gap insurance vs other coverages

How does gap insurance work in Texas compared to other types of coverage? Gap insurance is an optional coverage that is in some ways similar to other common types of insurance. Almost every state in the U.S. requires liability insurance, which protects the other driver if you are at fault in an accident. The following types of coverage, however, are designed to protect you and your car following a mishap or accident.

Gap insurance Comprehensive Collision
What it covers Will pay the difference between the depreciated actual cash value of your car and the amount you owe on your car loan, if that amount is greater than the ACV. Covers damage to your car for non-accident-related reasons, including a falling item such as a tree, flooding, hail damage, damage from hitting an animal and theft or vandalism. Covers damages to your car following a collision, whether it is your fault or not. Also covers damage following a hit-and-run accident, or if your car is damaged by road debris or potholes.
Who offers it Some insurers, such as Nationwide, AAA and Progressive, offer gap insurance; others do not, or offer something slightly different, like State Farm’s Payoff Protector. You may also buy gap insurance from your car dealership or banks and credit unions. Almost all major insurers offer comprehensive coverage as an option. Offered by most insurers, collision is very common and considered part of a full coverage policy.

Where to buy gap insurance in Texas?

Gap insurance is not required in Texas, but can be a good option if you are purchasing a new or slightly used car and are financing the purchase. Ask your dealer if they offer gap insurance, but in addition, you may also want to check with your current auto insurance company. You’ll find the best rate if you get several quotes from other gap insurance providers or car insurance companies.

In most cases, buying gap insurance offered by your dealership will be more costly than what you can find on the insurance market or through a finance company. Taking the time to do some background work can find you a policy that costs less, offers more coverage and provides high-quality service and claims management. One factor worth noting: the cost of your gap coverage cannot cost more than 5% of the loan amount, according to Texas law.

Gap insurance companies in Texas

  • Associated Credit Union of Texas: add gap coverage to an existing ACU of Texas auto loan, or sign up for it when you apply. Coverage is refundable if you cancel within 60 days.
  • Allstate: One of the largest insurers in the U.S., Allstate offers gap insurance to Texas policyholders, and they recommend it for those who have made less than a 20% down payment on the vehicle, have an auto loan of 60 months or more, or are leasing their vehicle.
  • Greater Texas Credit Union: offers inexpensive gap insurance for any credit union member up to 18 months after the loan inception date.
  • USAA: USAA sells policies to military members, veterans and their families. If you fit one of these categories, consider getting a quote from the company for gap insurance, since USAA is known for inexpensive insurance options.
  • Texas DPS Credit Union: offers Gap Plus, which includes deductible assistance if your vehicle is not totalled, as well as a reduction of $1,000 for your next loan with the company.

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