Gap Insurance in Texas

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Written by
Cara Carlone
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On average, new cars lose 20% of their value within the first year of ownership. If your car is totaled and you have an outstanding balance on your loan that exceeds the value of your car, you could be stuck paying out of pocket for the difference. This is where gap coverage comes into play.

Drivers in Texas can purchase gap coverage to protect themselves from this scenario. While I have witnessed many customers purchase this coverage throughout my decades-long insurance career, many don’t understand how it works. For everything you need to know about gap insurance, keep reading.

Key Takeaways

  • Gap insurance covers the difference between the balance of your lease or loan and the value of your car

  • Coverage can be purchased as a stand-alone policy or added to your car insurance policy

  • It is more cost-effective to buy gap coverage through your car insurance company

What Is Gap Insurance?

Simply put, Guaranteed Asset Protection, or gap insurance covers the gap between your vehicle’s actual cash value and your lease or loan balance. In a total loss accident, insurance companies will only pay for the value of your car, regardless of how much you owe on your loan. So if your balance is more than the value, you would be stuck paying the difference.

CCC, an insurance software company, conducted a study that estimated 20% of vehicles were totaled vs repaired since 2018. With the average price of new vehicles in 2023 at $48,759, the potential to owe more than your car is worth is very real. Especially if you are not making a significant down payment at purchase.

Note: A vehicle is totaled when the cost to repair exceeds its value. To determine the actual cash value of your car, insurers often use tools such as Kelley Blue Book or NADA.

How Does Gap Insurance Work?

To demonstrate how gap insurance works, let’s consider the following scenario. You purchase a new vehicle that costs $40,000, and you make a $5,000 deposit, financing the remainder. You are later involved in an accident a few years after your purchase.

If your car’s actual cash value is $20,000, and you still owe $23,000 on the car, a difference of $3,000 would need to be made to your bank for the remainder of your loan. Without gap insurance, that amount would be paid out of pocket. But if you purchased gap insurance, the $3,000 would be paid by your insurance company.

Note: Gap insurance only applies when you owe more than your car is worth. Once you pay off your car loan, the insurance company will no longer pay more than the car’s actual cash value.

How Much Does Gap Insurance Cost?

The national average cost of gap insurance is $61 a year, according to Forbes Advisor. In Texas, gap insurance ranges between $24-$360 a year, depending on whether you purchase it from an insurance company or a dealership.

If you purchase from a dealership, the state limits the cost to be no more than 5% of the loan amount or 5% of the adjusted capitalized cost named in your lease. However, even with this restriction, it is a better value to purchase directly from your insurance company, if available.

Gap Insurance VS Full Coverage

While both gap insurance and full coverage broaden the potential reimbursements from your insurance company, they are two different coverages. Gap insurance pays the difference between the actual cash value of your car and the balance of your lease/loan. In contrast, full coverage adds comprehensive and collision coverage to your policy.

Comprehensive coverage pays for damages resulting from things such as fire, theft, vandalism, and collision with an animal. Collision repairs your car if it is damaged from your car making contact with another car or object.

Gap Coverage Full Coverage
Applicable When the Car is Financed/Leased? Yes Yes
Required? No Yes, if the vehicle is financed/leased
Cost? $61 per year $2,542 per year
Deductible Apply? Yes Yes

Where Can I Find Gap Insurance In Texas?

Gap insurance can be purchased either as a stand-alone policy or as an add-on to your auto policy. While both are viable options, you will pay much less through your car insurer. Stand-alone policies can range between $500-$700 as a flat fee, whereas car insurers typically charge between $40-$60 per year.

Note: Many dealerships will try to roll the cost of gap insurance into your loan. This will cost you significantly more in the long run, especially when you take interest into consideration. The better option is to add it onto your car insurance policy instead and remove the coverage when you pay off your loan.

The following is a list of some companies that are licensed to offer gap insurance in Texas:

  • Allstate
  • American Modern Home Insurance Company
  • Arch Insurance Company
  • Balboa Insurance Company
  • Great American Insurance Company
  • Markel
  • Nationwide
  • Ohio Indemnity Company
  • Old Republic Insurance Company
  • Progressive
  • Spinnaker Insurance Company
  • State Farm
  • State National Insurance Company
  • Transamerica Casualty Insurance Company
  • USAA

Do I Need Gap Insurance In Texas?

Gap insurance is not legally required in Texas. In fact, Texas law prohibits requiring gap insurance as a condition for a lease or loan. However, experts still recommend purchasing this coverage if you lease or finance your car, especially in certain situations.

I recommend always adding gap insurance to your auto policy if you lease or finance your car since it’s so inexpensive. But for those on a budget, you can skip the coverage if you don’t meet any of the following:

  • You put less than 20% for a down payment
  • Your finance terms are 60 months or more
  • Your vehicle is one that depreciates quicker than the average
  • You rolled over a previous loan balance onto your new car loan

How To Buy Gap Insurance In Texas?

To buy gap insurance in Texas, you should follow the steps below.

  1. Determine whether you want to purchase gap coverage on a stand-alone policy or through your car insurer and price both options.
  2. Find a reputable company that is licensed to offer gap insurance in Texas. If you prefer a stand-alone policy through the dealership, this coverage can often be purchased at the time you sign your lease/loan paperwork.
  3. If you decide to obtain gap insurance through your car insurer, call your insurance company to ensure they offer it.
  4. Add the coverage to your leased or financed car.


What does gap insurance cover in Texas?

Gap insurance covers the difference between the value of your car at the time of a loss and the remaining balance on your lease or loan. Without this coverage, insureds would be forced to pay this amount out of pocket.

How much is Gap insurance in Texas?

In Texas, the amount you pay for gap insurance will depend on whether you purchase a stand-alone policy or add it to your auto policy. Stand-alone policies are typically $500-$700 as a flat fee, while car insurers charge between $40-$60 a year.

Do I need gap insurance if I have full coverage?

Most lenders will require you to carry full coverage if you lease or finance your car. While it is not mandatory to also have gap insurance in these scenarios, it is often recommended.


  • KBB – How to beat car deprecation
  • CCC – P&C insurance and collision repair industry trends report
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