Do I Need Gap Insurance if I Live in Texas?

State law does not require Texas drivers to purchase guaranteed asset protection — also known as gap insurance. Nevertheless, it may be worth buying gap insurance in Texas if you’d struggle to pay off your auto loan in the event of a total loss shortly after purchasing your new vehicle. You may be able to get gap coverage from your insurance provider, a car dealership or another financial institution.

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

On This Page

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  Is Gap Insurance Required in Texas?

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  What Does Texas Gap Insurance Cover?

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  How Does Gap Insurance Work in Texas?

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  How Much Does Gap Insurance Cost in Texas?

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  Which Companies Offer Gap Insurance in Texas?

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  How Do I Buy Gap Insurance in Texas?

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  FAQs

Is Gap Insurance Required in Texas?

Gap insurance is not required by law in Texas. In fact, Texas state law prohibits lenders and dealers from declining to offer someone an auto loan based on their refusal to sign a gap waiver — a contract that functions similarly to gap auto insurance.^[1] You should note that, if you want to purchase optional gap coverage, you will likely be required to obtain comprehensive and collision insurance first.^[2]

What Does Texas Gap Insurance Cover?

Gap insurance coverage is a type of car insurance that can pay out the difference between the remaining balance on your auto loan 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 an agreement that your auto lender will cancel some or all of your remaining debt after a total loss.

For example, suppose your car is worth $22,000 but you still owe $25,000 to your lender. If you get into a car accident and total your vehicle, you may be able to file a claim on your collision insurance 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 your loan.

Keep in mind that gap insurance doesn’t cover the cost of buying a new vehicle like new car replacement insurance does. Instead, it keeps you from having to pay off two separate loans for both your totaled vehicle and a new car at the same time. In addition, gap insurance only takes effect after a total loss, so it won’t help you pay off your outstanding loan balance 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 can depreciate. The majority of vehicles lose around 20% of their value within one year and around 60% of their value within five years.^[3] As a result, it’s not uncommon for the ACV of your car to drop below the outstanding balance on your loan, especially early on in the loan term.

You will usually owe less on your loan than your car is worth after making payments for two years, at which point you no longer need gap insurance and should cancel your policy.^[4]

Like other types of car insurance, your gap insurance policy may come with a set of exclusions. For example, your insurer may deny a gap insurance claim if your vehicle was totaled while you were racing or committing a crime. Additionally, your gap insurance may exclude coverage for total losses caused by mechanical breakdowns — which are also excluded by standard physical damage coverage.^[1]

Texas Gap Insurance Laws

The state government of Texas has established numerous regulations that apply to the sale of gap waivers. For example, lenders in Texas legally cannot offer you a gap waiver in the following situations:^[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
• Your loan has a term of less than four years and doesn’t require you to make a balloon payment at the end of the term

Texas gap waiver laws also dictate what information must be included on the certificate of coverage your lender gives you, how quickly your lender must send you your settlement after you file a claim, when your lender is required to offer you a prorated refund following the early termination of your waiver and how the refund can be calculated.^[1]

How Much Does Gap Insurance Cost in Texas?

Gap insurance from your auto insurance company should add about $20 to your annual premium.^[5] Coverage from other financial institutions — like banks and dealerships — is often more expensive but may include extra benefits. For example, you can pay $599 to $749 across the life of your loan — depending on the type of vehicle you insure — for gap coverage from Texas DPS Credit Union that can help pay your comprehensive or collision deductible.^[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 per $1,000 borrowed, and it applies to 84-month balloon loans. For example, if you take out a $30,000 balloon loan with a seven-year financing term, you will have to pay roughly $1,238 for a gap waiver — or $177 per year.^[1]

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?

According to the Texas Department of Insurance website, the following insurance companies are authorized to sell personal gap insurance policies in the Lone Star State:^[7]

How Do I Buy Gap Insurance in Texas?

In order to find an affordable 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, auto loan and more — which would be a burdensome process if you had to reach out to gap insurance companies one by one.

Fortunately, you don’t have to. Simply fill out our quick, online questionnaire, and we can share information about your coverage needs and budget with insurance agents who can help you compare the best policies in your region. If you’d like to compare car insurance quotes for free, click here and type in your ZIP code to get started.