Gap Insurance in California (2025)
Purchasing gap insurance could protect many drivers from paying out of pocket if their car is totaled.
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Auto insurance helps protect you financially in an auto accident or incident. But if your vehicle is a total loss and you still have a car payment, your insurance coverage may not offer enough protection to pay off your loan. Gap insurance provides additional protection that covers the financial gap between what your insurance pays on your policy and what you still owe on your car loan.
Gap insurance won’t be necessary for everyone, but if you purchase or lease a new vehicle, you should consider gap coverage to help protect against being left with a bill for a vehicle you no longer have.
Quick Facts
California updated laws to minimize the cost of gap coverage.
Lenders aren’t allowed to offer financial incentives to purchase gap policies.
Gap policies provide coverage only if you owe more than the value of your car when it’s totaled.
What’s gap insurance, and how does it work?
Gap insurance is a type of optional coverage that stands for “guaranteed asset protection.”[?] One downside of purchasing a brand-new vehicle is that it depreciates immediately. The purpose of a gap insurance policy is to cover the difference between the actual cash value of your vehicle and your loan balance. Gap policies only apply if your vehicle is totaled. They don’t cover repairs.
For example, if you total your vehicle worth $15,000, and your loan balance is $16,500, the gap insurance policy will pay the extra $1,500 to cover the remaining balance. You can generally purchase a gap policy through a car dealership or a separate company.
A gap insurance policy could be a good idea if you made a smaller down payment, have an extended financing period, or are rolling over negative equity from a previous car purchase.
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What gap insurance covers in California
In 2022, the California state government passed a law tightening regulations on gap coverage.[?] The state now requires insurance companies to ensure customers know that purchasing gap insurance policies is optional. California has also taken steps to minimize the purchase of gap policies by customers who wouldn’t likely be able to use them if their newer vehicles were totaled.
The state also requires insurance companies to cap the gap waiver price at 4% of the car’s financed amount. Further, lenders and car dealerships can’t offer financial incentives for purchasing a gap policy.
Gap insurance vs. full coverage
Full-coverage insurance protects drivers against liability and offers additional protections to cover damage to your vehicle if you’re in a car accident. Full-coverage policies typically include comprehensive and collision coverages as well as liability protection.
In California, full coverage has increased minimum limits of $100,000 per person and $300,000 per accident for bodily injury, $50,000 for property damage, and $30,000 per person and $60,000 per accident for uninsured/underinsured motorist coverage.[?]
Full coverage will offer financial protection for your property, no matter who’s at fault. Full-coverage policies don’t typically include gap insurance.
Good to Know
Whether you have a full-coverage policy or liability-only insurance, you should consider paying for a gap policy if you wouldn’t be able to afford the loss of your car. While full coverage will pay the total value of your vehicle if it’s totaled, you may have an auto loan larger than the value of your car. This is where gap insurance can help.
Who needs gap insurance in California?
The Golden State doesn’t require drivers to carry gap insurance. In 2022, the state introduced a new law that requires insurers to inform consumers that it’s an optional insurance product. In addition, insurance companies and financial institutions can’t sell unusable gap policies (gap coverage on vehicles that won’t depreciate quickly enough to require additional coverage).
A gap insurance policy could make sense if you:
Made a small (or no) down payment
Are leasing a new vehicle
Purchased a new car (even with a larger down payment)
Have negative trade-in equity on a previous purchase
On the other hand, you may not need to purchase gap insurance if you made a sizable down payment on a used vehicle, qualify for low interest rates, or plan to pay your car off in five years or less.
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How to buy gap insurance in California
California drivers have a few options for purchasing a gap policy. You can buy coverage through your insurance company, a stand-alone gap coverage provider, a car dealership, or a lender. Your car dealership or lender may also offer a gap policy at the time of purchase.
You should talk to your insurance company when purchasing your vehicle to see if it provides a more affordable gap policy.
Best gap insurance companies in California
Although some major insurance companies offer gap protection, purchasing a gap product directly from the car dealership or your lender is more common. If you want gap coverage through your insurer, here are three of your best choices in California.
Allstate
Dairyland
Travelers
Data scientists at Insurify analyzed more than 40 million real-time auto insurance rates from our partner providers across the United States to compile the car insurance quotes, statistics, and data visualizations displayed on this page.
The car insurance data includes coverage analysis and details on drivers’ vehicles, driving records, and demographic information. Quotes for Allstate, Farmers, GEICO, State Farm, and USAA are estimates based on Quadrant Information Services’ database of auto insurance rates.
With these insights, Insurify is able to offer drivers insight into how companies price their car insurance premiums. The data included on this page represent averages across driver ages, genders, credit scores, and driver profiles for California drivers.
Gap insurance in California FAQs
Insurance products can be tricky to understand. Here are a few of the most popular questions and answers about instances when you might need gap insurance.
Does California require gap insurance?
No. Gap insurance is optional in California. California law requires dealers and lenders to inform customers that purchasing a gap policy is optional. Lenders and dealers can’t offer special financing to encourage buying a gap policy either.
Is gap insurance in California a good idea?
Gap insurance may be a good option if you have longer repayment terms, made a small down payment, or have negative equity. Gap coverage can also offer financial peace of mind if your expensive new car is totaled in an accident.
Is gap insurance refundable in California?
Sometimes. Recent state law changes require the gap insurance provider to inform you about prorated refund totals within 60 business days. If you pay your gap policy monthly, you may not have any prorated funds to refund.
What is the max gap insurance price in California?
California law requires gap protection for at least 70% of the vehicle value and caps the cost of gap insurance at 4% of the total financed amount.
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