Gap insurance in Texas

1
Tom Penpark/Getty Images
Bankrate Logo

Why you can trust Bankrate

While we adhere to strict , this post may contain references to products from our partners. Here's an explanation for . This content is powered by HomeInsurance.com (NPN: 8781838). For more information, please see our

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.

What is gap insurance?

Simply put, Texas gap insurance is coverage you get from an insurer, dealer or bank that covers the difference between your car’s actual cash value (ACV) and the amount you owe on your car loan if your car is a total loss after an accident. It is only available when you are receiving a payout following an insurance claim.

What does gap insurance in Texas look like? Your gap coverage might resemble this: let’s say you owe $20,000 on the car loan for your GMC Sierra. You are involved in an accident after which it is determined that the Sierra is a total loss. But the car’s assessed value, which the insurer uses to determine your payout, is only $15,000. Without gap insurance, you would be out by $5,000 — or more — depending on your deductible; gap insurance will pay that difference.

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.

Frequently asked questions

How much is gap insurance?

Gap insurance prices vary greatly depending on the value of your car, the amount of your loan and other factors. The maximum cost of your gap insurance is 5% of the amount of your car loan. So if your loan is $20,000, the most your gap insurance can cost is $1,000 a year — though by shopping around, you may be able to find it for considerably less.

Is gap insurance required in Texas?

No, gap insurance is not required in Texas. Texas state law requires all drivers to carry a minimum 30/60/25 of liability coverage. What that means is that you must have coverage to pay for a single injury up to $30,000 following an accident; up to $60,000 if there is more than one injury; and $25,000 in property damage to the other car or structures such as fences or light posts. Other than this coverage, the types of coverage you choose, including gap insurance, are optional.

Can I cancel my gap insurance?

In many cases you can — and should, if your car loan is less than the assessed value of your car. So if you have reduced your loan to, say, $5,000, and your car is valued at $8,000, gap insurance would be a waste of your money. Check with your insurer, however, to make sure you are able to cancel when you’ve paid off enough on your loan.

Written by
Mary Van Keuren
Insurance Contributor
Mary Van Keuren has written for insurance domains such as Bankrate.com, Coverage.com and Thesimpledollar.com for the past five years, specializing in home and auto insurance. She has also written extensively for consumer websites including reviews.com and myslumberyard.com. Prior to that, she worked as a writer in academia for several decades.
Edited by
Insurance Editor