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Last updated: October 17, 2023

Guide to Gap Insurance in Texas

Does Texas require Guaranteed Asset Protection?

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Let’s say you took out a loan on your vehicle and then got into an accident that totaled it, meaning that the repairs cost more than the car’s actual cash value (ACV). Do you still owe the remaining amount on your loan, even though the car is virtually worthless in its current condition?

If you had gap insurance at the time of the accident, the answer is no. Most loan providers, along with lessors, recommend gap insurance, which protects both parties financially in the event of a total loss. However, in Texas, lenders can’t require that you purchase gap insurance as part of a loan agreement. Let’s see how else Texas legislates gap insurance.

What Is Gap Insurance Coverage?

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.


For theft coverage, pair gap insurance with comprehensive coverage. Comprehensive coverage will pay for the vehicle’s actual cash value, but not the remainder of your loan; that’s where gap insurance comes in. The same goes for collision insurance.

What It Doesn’t Cover

However, gap insurance does not cover:

  • Deductible
  • Missed loan payments
  • Late fees
  • Mechanical issues
  • Medical expenses
  • Funeral costs
  • Lost wages

How Does Gap Insurance Work in Texas?

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.

The Cost of Gap Insurance in Texas

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.

Gap insurance Minimum Maximum Average
Average annual cost $262 $680 $471
Manufacturer $200 $700 $450
Dealership/lender $350 $850 $600
Add-on to auto insurers’ policy $20 $40 $30

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

Texas Law on Gap Insurance

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.

Financing term by months Loan rate per $1,000 financed Balloon loan rate per $1,000 financed
24 0 7.16
27 0 8.64
30 0 10.14
33 0 11.68
36 0 13.24
39 0 14.6
42 0 15.99
45 0 17.41
48 7.45 18.87
51 8.51 20.3
54 9.64 21.8
57 10.82 23.34
60 12.05 24.92
63 13.35 26.75
66 14.7 28.58
69 16.17 30.44
72 17.72 32.31
75 19.39 34.53
78 21.17 36.74
81 23.06 38.99
84 25.09 41.26


A balloon loan is a loan with a larger one-time payment at the end of a loan term, meaning the monthly payments will be lower.2

If a gap insurance agreement ends before the loan is finished, the lender must refund the borrower or give them a prorated credit. To learn more about Texas’ gap insurance laws, read Texas Administrative Code Section 83.812.3

How Much You Need

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.

Is It Worth It?

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.

How to Get Gap Insurance

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:

  • American Modern Home Insurance Company
  • American National Property and Casualty Company
  • American Security Insurance Company
  • Arch Insurance Company
  • Balboa Insurance Company
  • Continental Casualty Company
  • Courtesy Insurance Company
  • Financial American Property and Casualty Insurance Company
  • First Colonial Insurance Company
  • Great American Insurance Company
  • Great American Insurance Company of New York
  • Ironshore Indemnity Inc.
  • Landcar Casualty Company
  • Lyndon Property Insurance Company
  • Markel Insurance Company
  • MIC Property and Casualty Insurance Corporation
  • Ohio Indemnity Company
  • Old Republic Insurance Company
  • Old United Casualty Company
  • Republic Lloyds
  • Securian Casualty Company
  • Sentruity Casualty Company
  • Service Lloyds Insurance Company
  • Spinnaker Insurance Company
  • State National Insurance Company Inc.
  • Transamerica Casualty Insurance Company
  • United Financial Casualty Company
  • Universal Underwriters Insurance Company
  • Virginia Surety Company, Inc.
  • Wesco Insurance Company
  • Work First Casualty Company4

Best and Cheapest Gap Insurance in Texas

If you want to buy gap insurance from a credit union, you can choose from the Associated Credit Union of Texas, the Greater Texas Credit Union, and the Texas DPS Credit Union.

With the Texas DPS Credit Union, take advantage of what it calls GAP PLUS. Let’s say your vehicle is damaged, and your repairs cost more than your deductible, but the car isn’t a total loss. In this case, your deductible amount can be applied to your vehicle loan. As of April 12, 2023, here are the deductible amounts:

  • Cars, power sports, trucks, and motorcycles: $549
  • Watercrafts: $599
  • RVs: $6995

But gap insurance is the cheapest if you buy it as an add-on to your car insurance company. The best gap insurance companies in Texas include:

Check with your auto insurance company to see if it offers gap insurance.


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.

Frequently Asked Questions

What is the Texas state maximum for gap insurance?

The Texas state maximum for gap insurance is an 84-month loan with either a 25.09 percent APR for regular loans or a 41.26 percent APR for balloon loans.

Why would a gap claim be denied?

A company might deny a gap claim because it is a bodily injury claim, as gap insurance covers property damage only.

How long does it take for gap insurance to pay in Texas?

Gap insurance providers in Texas must pay claims within 60 days of receipt under Texas Administrative Code Section 83.812.

Will gap insurance cover a blown engine?

Typically, gap insurance will not cover a blown engine, as it doesn’t cover total losses from mechanical issues.


  1. 2019/2020 Auto Insurance Database Report. National Association of Insurance Commissioners. (2023, Jan).

  2. What is a balloon payment? When is one allowed? Consumer Financial Protection Bureau. (2020, Sep 9).

  3. 7 Tex. Admin. Code § 83.812. CaseText. (2023, Sep 22).

  4. Companies Authorized to Offer GAP Insurance Coverage. Texas Department of Insurance. (2016, Mar 17).

  5. GAP Plus. Texas DPS Credit Union. (2023).