Do I Need Gap Insurance if I Live in Texas?

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Texas law does not require drivers to purchase guaranteed asset protection, also known as gap insurance. Nevertheless, it may still be worth buying if you would struggle to pay off your auto loan in the event of a total loss during your first couple of years of owning a new vehicle. You may be able to get gap coverage from an insurance company, car dealership or other financial institution.

Keep reading for more information about gap insurance in Texas including how much you can expect to pay for it and what restrictions exist under state law.

Key Takeaways

  • You do not have to purchase gap insurance in Texas and you cannot be required to sign a gap waiver as a condition for receiving a loan.
  • Gap insurance makes up the difference between your car’s actual cash value (ACV) and the amount you still owe to your lender after your car is stolen or totaled.
  • Texas law regulates when you can be sold a gap waiver, how much it can cost, what exclusions it can include, how long your lender has to pay out claims and when you are eligible for a refund.
  • It generally costs about $20 per year to get gap insurance from a car insurance company, while lenders and dealers may sell you broader coverage at a much higher price.

Is Gap Insurance Required in Texas?

You are not required by law to purchase gap insurance in Texas. In fact, state law prohibits lenders and dealers from forcing you to sign a gap waiver as a condition for receiving an auto loan.[1] However, if you do want to purchase optional gap coverage, you should keep in mind that you may have to obtain comprehensive and collision coverage first.[2]

What Does Texas Gap Insurance Cover?

Gap insurance is a type of car insurance that can cover the difference between your outstanding loan balance and the actual cash value (ACV) of your car if it is stolen or totaled. You can obtain similar coverage by purchasing a gap waiver, which is in agreement that your lender will cancel any remaining debt on your auto loan that exceeds your car insurance payout after a total loss.

For example, if someone steals your car while it is worth $22,000 but you still owe $25,000 to your lender, you could file a comprehensive insurance claim and receive $21,000 after subtracting your $1,000 deductible. Then, you could file a gap insurance claim, receive $3,000 and use the combined payments to finish paying off the loan.

gap insurance payment coverage between insurer and policyholder illustration

Keep in mind that gap insurance won’t pay to buy you a new car. Instead, it keeps you from having to pay off loans for both a new car and a vehicle you no longer have at the same time. In addition, gap insurance only takes effect after a total loss, meaning it won’t help you pay off your loan if your car is still salvageable.

How Does Gap Insurance Work in Texas?

Texas drivers may benefit from purchasing gap insurance coverage because of how quickly cars depreciate. The majority of vehicles drop in value by around 20% within one year and by around 60% within five years.[3]

As a result, it’s not uncommon for the ACV of your vehicle to drop below your outstanding loan balance.

You will usually need to make payments for about two years before you will owe less on your loan than your car is worth. At this point, you will no longer need gap insurance and should cancel your policy.[4]

Like a typical auto insurance policy, your gap insurance may come with a set of exclusions. For example, your insurer may deny a gap insurance claim if your vehicle was damaged while you were racing another vehicle or committing a crime. It will also likely exclude coverage for total losses caused by mechanical breakdowns since these are also excluded by a standard car insurance policy.[1]

Texas Gap Insurance Laws

While Texas law does not specifically regulate gap insurance, it has numerous rules that apply to the sale of gap waivers. For example, lenders in Texas legally cannot offer you a gap waiver in situations such as the following:[1]

  • Your vehicle is already covered by gap insurance
  • Your loan isn’t secured by any sort of collateral or is secured by property other than your car
  • The term of your loan is less than four years and you don’t have to make a balloon payment at the end of the loan term

How Much Does Gap Insurance Cost in Texas?

If you buy coverage from your auto insurance company, gap insurance should add about $20 per year to your premiums.[5] Coverage is typically more expensive from other financial institutions like banks and dealerships, although their policies may include extra benefits. For example, Texas DPS Credit Union sells gap coverage that will also pay your comprehensive or collision deductible for $549 to $699 depending on the type of vehicle you are insuring.[6]

Meanwhile, Texas law regulates how much a gap waiver can cost based on the size of your loan, the length of its term and whether you must make a balloon payment at the end of the term. The highest rate allowed is $41.26 for every $1,000 you borrow and it applies if you take out a seven-year balloon loan. Overall, gap waiver prices can range from less than 1% of the value of your loan to a little more than 4%.[1]

Which Companies Offer Gap Insurance in Texas?

The Texas Department of Insurance website features a list of car insurance companies that are authorized to sell personal gap insurance policies in the state. While the list has not been updated since 2016 and therefore may not be exhaustive, it should at least provide you with a starting point as you search for a gap insurance provider.[7]

  • 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 Company

How Do I Buy Gap Insurance in Texas?

If you’re looking for a car insurance policy that includes gap coverage, you should request quotes from at least three to five insurance carriers. You’ll likely have to provide information about your vehicle, driving record, claims history and auto loan, which would be a burdensome process if you had to reach out to insurance companies one by one.

Fortunately, you don’t have to. Fill out our online questionnaire and we can share information about your coverage needs and budget with insurance agents in your region. If you’d like to compare auto insurance quotes for free, type your zip code below to get started.

Get Your Free Car Insurance Quote Today!


What is gap insurance in Texas?

Similar to gap insurance in other states, gap insurance in Texas pays the difference between your vehicle’s actual cash value immediately before it’s totaled and the outstanding balance on your auto loan. This keeps you from having to make car payments on a vehicle that is undrivable.

Is gap insurance regulated in Texas?

Texas law doesn’t specifically regulate gap insurance but it does regulate gap waivers. For example, Texas law dictates when you can be offered a gap waiver, how much it can cost and what rights you have as a borrower.[1]

How long do gap insurance payouts take in Texas?

After you file a claim, the lender who sold you a gap waiver must pay you within 60 days.[1]

What is the maximum gap insurance law in Texas?

The maximum amount a financial institution can charge you for a gap waiver is $41.26 for every $1,000 you borrow through a seven-year balloon loan.[1]

Is gap insurance refundable in Texas?

Your lender must give you a full refund if you cancel your gap waiver within 60 days of taking out your loan. Meanwhile, your lender must give you a prorated refund if you cancel your gap waiver after 60 days but before you have finished paying off your loan.[1]


  1. Texas Administrative Code. “Gap Waiver Agreement.” Accessed September 21, 2023.
  2. Kelley Blue Book. “What Is GAP Insurance: Everything You Need To Know.” Accessed September 21, 2023.
  3. Kelley Blue Book. “How To Beat Car Depreciation.” Accessed September 21, 2023.
  4. Texas Department of Insurance. “Do You Need Gap Insurance for Your Car? How Does It Work?” Accessed September 21, 2023.
  5. Insurance Information Institute. “What Is Gap Insurance?” Accessed September 21, 2023.
  6. Texas DPS Credit Union. “GAP Plus.” Accessed September 21, 2023.
  7. Texas Department of Insurance. “Companies Authorized To Offer GAP Insurance Coverage.” Accessed September 21, 2023.

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