Guide to Gap Insurance in Texas

Gap insurance stands for guaranteed asset protection. It is insurance that pays the remainder of your loan or lease if you total a vehicle.

What It Covers

Gap insurance covers the remaining amount on your loan/lease after the total loss of your car, either from an accident or from auto theft.

You bought a new car. Congratulations! Let’s say you put $10,000 down and obtained a car loan for $90,000. But what happens, a year later, when someone steals your car?

While comprehensive coverage would pay for the car’s actual cash value at the time of the theft, which is an amount less than what you originally paid (let’s say $80,000), you’d still be on the hook for the remaining loan balance. Gap insurance would cover that amount so you don’t have to pay a loan on a nonexistent vehicle.

Want cheap car insurance in Texas? The best option is to get your gap insurance as an add-on to your car insurance policy. Buying it from your car’s manufacturer, your lender, or the dealership where you purchased your car will cost hundreds of dollars more.

Given that the average cost of car insurance in Texas was only $1,085 in 2020, the last time the National Association of Insurance Commissioners released data, gap insurance should increase total cost to just $1,125.¹

The minimum insurance required in Texas does not include gap insurance. Rather, it requires liability coverage only. Texas also says that lenders cannot force borrowers to purchase gap insurance in order to obtain a loan.

If the borrower opts to buy gap insurance anyway, the loan provider must give the borrower, within 10 days of the loan, a form that states the following:

• All terms
• Borrower name
• Cost of agreement
• Coverage amount and term of gap insurance
• Exclusions
• Limitations
• Name, address, and phone number of the location that administers claims
• Restrictions

Texas also sets maximum rates for fees based on the amount financed.

The amount of your gap insurance should be equal to the amount of your loan or lease. That way, you can be sure that you won’t have to pay the remainder out of pocket if you total your car. To determine your car’s value, check out Kelley Blue Book.

Gap insurance isn’t for everybody, but it’s required in some cases and merely recommended in others.

Who Should Buy Gap Insurance

You should get gap insurance if:

• You owe more on your auto loan than your car is worth.
• Your down payment was less than 20 percent of your car’s value when you financed it initially.
• Your loan term is 60 months or more.
• You have a luxury car that depreciates faster than other vehicles.
• You rolled over negative equity from an old loan in your new car loan.

Who Shouldn’t Buy Gap Insurance

But don’t get gap insurance if:

• You own your car.
• You put down 20 percent or more when you financed your vehicle.
• Your loan or lease is less than five years.
• Your car holds its value over time.

If you’ve made the decision to buy gap insurance, make sure you do it at the right time and from the right company.

When to Get It

You should get gap insurance at the beginning of your loan or lease, as in theory, you could total the car moments after leaving the dealership.

Authorized Companies

Here is a list of all the companies authorized to sell personal gap insurance in Texas:

Whether it’s a loan for a used car, a loan for a new car, or a lease, gap insurance is typically a good idea. We also recommend getting new-car replacement coverage so you can actually replace the totaled vehicle with a new car. When it comes to insurance, you’re better safe than sorry, and gap insurance is a great example of that. To learn more, read our frequently asked questions below.