Everything You Need to Know About Buying Gap Insurance in California

New cars begin losing value when you drive them off the lot, and most cars drop 20 percent in value within a year.¹ So if your car is totaled or stolen, your insurance may only pay out the car’s cash value, an amount that’s less than what you still owe on it. Gap coverage comes in handy here, covering the difference so you’re not paying off a car you can’t drive anymore.

What Gap Coverage Covers

• The remaining balance on a loan or lease after an insurance payout in the event of theft or total loss

What Gap Coverage Doesn’t Cover

• The cost of a new car
• Injuries, medical expenses, or funeral costs
• Your collision and comprehensive coverage deductible (in most cases)
• Lost wages
• Late fees or missed payments

As an example, let’s say you buy a new car for $30,000.

• You make a down payment of $3,000, and you take out a loan for the remaining $27,000 plus interest.
• A month later, someone steals your car. At this point, the value of your car has depreciated to $23,000, but you still owe $27,000 on it.
• Your insurer pays you the car’s $23,000 value (minus your deductible, or the amount you pay out of pocket before your insurer pays a claim). This $23,000 only covers part of your $27,000 car loan.
• Gap insurance covers the remaining $4,000.

How much you’ll pay for gap insurance in California will vary by vendor, company, and city.

By Vendor

You’ll save the most by adding gap coverage to an existing full coverage policy, if available through your current insurer. Your next cheapest option is buying a stand-alone gap policy from another insurer, and credit unions tend to have the next-best prices after that. In general dealerships, manufacturers, and lenders tend to be priciest.

By Company

The following companies have some of the cheapest full coverage averages in California, and offer gap coverage or a similar protection. Actual costs will vary as each insurer uses its own formula to determine premiums.

A couple notes:

• Progressive has loan/lease payoff, which covers the difference between the payout and the loan up to 25 percent of the car’s value.
• USAA offers car replacement assistance, which adds 20 percent to your car’s value, regardless of whether you have a loan). You receive the money and decide how to use it.

For more shopping advice, check out our guide to the best auto insurance for gap coverage.

By City

Los Angeles is the most expensive city for gap insurance in California due to high traffic and vehicle theft. In 2024, over half of car thefts in the entire state took place in Southern California, and over 60 percent of thefts in Southern California took place in Los Angeles County.² In general, car insurance in California can be pricey due to high cost of living and population density.

Under Assembly Bill 2311, California has certain restrictions designed to enhance consumer protections and transparency in gap waivers.³ Gap waivers function similarly to gap insurance, but the former is typically available through a lender or financial institution, and the latter through insurers and credit unions.

Some important aspects of the bill:

• Requires lenders to clearly disclose the terms, conditions, and total costs of gap waivers, including that they are entirely optional
• Stops lenders from selling gap waivers when unnecessary (e.g. the vehicle owner is not underwater on the loan or lease), unless the buyer agrees after a conspicuous disclosure
• Allows buyers to cancel the gap waiver at any time, and requires lenders to refund any related charges if canceled within 30 days
• If a seller breaches the termination stipulations of a gap waiver, the buyer can recuperate triple the amount of prepaid gap charges
• Limits the cost of a gap waiver to no more than 4 percent of the loan amount

Ideally, your gap coverage will pay for any amount left on your car loan after the insurance payout (excluding the deductible). Some gap policies limit how much you can receive, e.g. up to 25 percent of the car’s actual cash value. You can find out how much your car is worth through sources like Kelley Blue Book, Edmunds, and J.D. Power.

Gap insurance makes sense for some drivers, but not all.

You Should Buy Gap Insurance If You

• Made a down payment under 20 percent of the car’s purchase value
• Leased a vehicle
• Financed your car for five years (60 months) or longer
• Rolled over negative equity from a previous loan into a new loan
• Bought a vehicle that depreciates more quickly, like a luxury or sports car

You Should Not Buy Gap Insurance If You

• Own your car outright
• Paid off enough of your loan that you’re no longer underwater
• Made a down payment at least 20 percent of the car’s purchase value
• Are paying off the vehicle in less than five years

Follow these handy tips to ensure the best value and a seamless purchase process:

• Start shopping for gap insurance well before buying your car. You should ideally have the policy finalized before leaving the dealership with your new car.
• Your current auto insurer will likely offer the cheapest gap insurance option. Check with them first to see if you can purchase an add-on to your existing policy.
• If unavailable with your current insurer, look into buying a stand-alone gap insurance policy with another insurer. Get a quote to see if it makes sense to switch your entire policy while you’re at it.
• Look into gap insurance through a credit union, which may offer lower rates compared to dealerships or traditional insurers.
• Finally, you can buy gap insurance from the dealership. However, we recommend going through previous options first as this is usually the most expensive route.

It makes sense to purchase gap coverage if you owe more on your loan than your car is worth. California has enacted laws to protect consumers from predatory gap waivers, but you should still buy from an insurance provider rather than a dealer or lender to get the lowest prices.

We analyze average auto insurance premiums in California for full coverage for good drivers with good credit. Averages use the following limits:

• Bodily injury liability: $100,000 per person/$300,000 per accident
• Property damage liability: $50,000 per accident
• Uninsured and underinsured motorist bodily injury: $100,000 per person/$300,000 per accident
• Comprehensive and collision: $500 deductible