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Last updated: August 22, 2023

Gap Insurance in California

Everything you need to know before purchasing gap coverage in the Golden State

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“Gap” coverage stands for guaranteed asset protection, and it covers the difference between what you owe and the actual value of your car in the event of a total loss. If you leased or financed your vehicle, your lender may require you to carry this coverage. You can purchase gap protection from an insurance company, dealership, manufacturer, or the institution through which you financed the vehicle.

We’ll walk you through the ins and outs of gap coverage in California, including the best places to purchase it, and consumer protections in the state.

What Is Gap Insurance Coverage?

Many have heard the old wisdom that new cars begin to lose value as soon as you drive them off the dealership lot. In fact, according to the Insurance Information Institute, most cars lose 20 percent of their value within a year.1 So what happens if you get into an accident, or your car is stolen, and the amount you still owe is greater than the value your insurance pays out? Gap coverage pays for the difference, ensuring you don’t owe money on a totaled or stolen vehicle.

What It Covers

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

What It 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


Refinancing your auto loan will typically void your gap policy. You will need to purchase a new gap policy, assuming you still need one.

How Does Gap Insurance Work?

The nitty-gritty of how gap coverage works can be confusing, which is why we’ve broken it down below.


Let’s say you buy a new car for $30,000. You put down $3,000, and you finance the rest for $27,000 plus interest. A month later, someone steals your car. At this point, the value has depreciated to $23,000.

You have comprehensive insurance, so your insurance company pays out the value of the car minus your deductible, but you still owe $4,000 on your car loan balance, plus the deductible amount. Gap insurance covers this difference.

Factor Amount
Amount owed on vehicle at the time of incident $27,000
Actual cash value of vehicle at the time of incident $23,000
Deductible $500
Insurance pays $22,500
With gap insurance, driver pays $500 (deductible)
Without gap insurance, driver pays $5,000 (deductible + gap)


Some gap policies cover your deductible. Check with your insurance company or gap coverage provider to see what’s included.

The Cost of Gap Insurance in California

How much you’ll pay for gap insurance in California depends on a few factors.

By Vendor

In general, the least expensive route to gap coverage is to add it to an existing full-coverage policy. However, if your insurance company does not sell gap coverage (not all do), it will still be cheaper to buy a gap policy for another insurance provider rather than through a dealership, manufacturer, or lender.

Gap coverage source Average cost
Add-on to existing full-coverage policy $20-$40 annually
Dealership or financial institution $500-$700 plus interest
Manufacturer $450 one-time fee
Stand-alone from an insurance company $200-$300 one-time fee

By Company

The cost of gap coverage, much like the cost of car insurance in California generally, will vary from person to person. That’s because each provider uses its own unique formula to determine premiums. On average, you can expect to pay around the following:

Company Average annual cost of policy with gap insurance in California
Allstate $2,353
Auto-Owners $2,239
CSAA $2,749
Farmers $2,840
GEICO $1,612
Hartford $2,678
Kemper $2,426
Liberty Mutual $2,245
Mercury $1,802
Nationwide $2,529
Progressive $1,507
State Farm $2,455
Travelers $2,332
USAA $1,635

By City

Los Angeles is the most expensive city for gap insurance in California due to high levels of traffic and incidents of vehicle theft. Indeed, in 2022, more than half of car thefts in the entire state took place in Southern California, and nearly 60 percent of thefts in Southern California took place in Los Angeles County.2 In general, car insurance in California can be expensive in part due to the high cost of living and population density.

City in California Average annual cost of policy with gap insurance
Anaheim $2,265
Colma $2,449
Fresno $2,091
Hayward $2,157
Irvine $2,131
Long Beach $2,371
Los Angeles $2,776
Oakland $2,446
Portola $1,819
Sacramento $2,376
San Diego $2,062
San Francisco $2,453
San Jose $2,006
Sausalito $2,143
Temecula $2,001
Vallejo $2,242

By Age

Drivers in their teens and twenties tend to pay the most for gap insurance due to their inexperience behind the wheel.

Age Average annual cost of policy with gap insurance in California
20 $4,058
30 $2,430
40 $2,283
70 $2,307


Families save money when teens drive used cars rather than new ones, due to the vehicles’ lower values.

Gap Insurance Laws in California

The minimum car insurance in California includes liability coverage only, not gap coverage. However, if you financed or leased your vehicle, your lender may require you to purchase gap insurance in case your car is stolen or totaled.

In addition, in 2023, the California state government passed California Assembly Bill 2311, legislation restricting the sale of gap waivers in the state. A gap waiver functions similarly to gap insurance in that it covers the difference between what you owe for the vehicle’s value in the event of a total loss. Typically, you’ll get a waiver if you purchase through your lender or financial institution, and you’ll get insurance if you purchase through a dealership or insurance company.

The laws governing gap waivers in California include the following:

  • Allows buyers to cancel the gap waiver at any time and requires lenders to refund any prepaid, unearned charges
  • Requires lenders to clearly disclose that gap waivers are entirely optional and cannot be a condition to a loan or sale terms
  • Stops lenders from selling gap waivers in cases where they’re unnecessary (e.g., the vehicle owner is not underwater on the loan or lease), unless the buyer agrees after a conspicuous disclosure
  • Limits the cost of a gap waiver to no more than 4 percent of the loan amount

How Much Gap Insurance Do You Need?

Ideally, your gap coverage will pay for any amount left on the loan after the insurance payout (not including the deductible). That said, some gap policies limit how much you can receive; for example, only 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.

Is Gap Insurance Worth It?

Gap insurance makes sense for some drivers but not others. According to the Insurance Information Institute, drivers who meet any of the following criteria should consider gap insurance:

You Should Buy Gap Insurance If You

  • Put down less than 20 percent
  • Leased a vehicle
  • Financed 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
  • Made a down payment of 20 percent or more
  • Are paying off the vehicle in less than five years

How to Buy Gap Insurance

The process for buying gap insurance differs slightly depending on where you buy it, whether through an insurance provider, dealer, lender, or manufacturer.

When to Get Gap Insurance

It’s best to shop for gap insurance before you go to the dealership to buy your car; that way, you have time to compare options and make a decision. If you have a sense of what car you’re going to purchase, you can get quotes ahead of time and finalize the insurance purchase at the dealership when you’re buying the car. You should have the policy in hand by the time you drive off the lot so that you’re covered right away.


We recommend checking with your current insurance provider first to see if it offers gap coverage as an add-on to your existing policy, as this will be the cheapest option. If it’s not available, we’ve rounded up the best insurance companies for gap insurance.

Consider buying a stand-alone policy or getting a quote and seeing if it makes sense to switch your entire policy. Finally, you can buy gap insurance from the dealership or your lender, though this is the most expensive option.

Best and Cheapest Companies

GEICO, Mercury, USAA, and Progressive have some of the cheapest insurance in California for gap coverage. When shopping for any type of insurance, get a quote from at least three companies.

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.

Frequently Asked Questions

Can you cancel gap insurance in California?

Yes, in most cases, you can cancel gap insurance in California. Legally, lenders in California must allow you to cancel a gap waiver at any time and refund any unused portion of the waiver. If you bought gap coverage through an insurance company, you can cancel at any time and receive a refund, typically.

Keep in mind that if you leased or financed your car, the lender may require you to carry some form of gap coverage. You might need to cancel your gap coverage if you sold your car or switched to a new gap coverage provider.

What are the cons of gap insurance?

The cons of gap insurance are that you may end up overpaying for coverage or paying for unnecessary coverage, particularly if you buy it through a lender or dealership. In most cases, gap coverage isn’t worthwhile for older cars. Some high-priced luxury and sports cars may not be eligible.

Will gap insurance cover a blown engine?

No. Gap insurance will not cover engine failure or other mechanical issues. If your car sustains mechanical damage during an accident, the damage would fall under collision coverage. And while a vehicle’s warranty covers mechanical defects up to a certain amount of time, neither a warranty nor insurance covers mechanical problems due to regular wear and tear or owner negligence.

Does Tesla have gap insurance?

Yes, Tesla offers gap insurance. Tesla not only manufactures cars, but it also sells auto insurance in 12 states, including California. If you leased your Tesla, gap coverage is included in your financing automatically. You also can purchase gap coverage as part of your insurance with Tesla if you purchased your vehicle.


  1. What is gap insurance? Insurance Information Institute. (2023).

  2. 2022 California Vehicle Theft Facts. California Highway Patrol. (2023).

  3. AB-2311 Motor vehicle conditional sale contracts: guaranteed asset protection waivers. California Legislative Information. (2023).