Gap Insurance in Texas (2025)
Gap insurance is an add-on that covers the difference between the amount you owe on a financed vehicle and what your insurer pays in case of a total loss.
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With rising auto loan interest rates, drivers in Texas pay some of the highest interest rates in the U.S. Recent Edmunds data shows that 25.2% of Texas drivers pay more than $1,000 per month to finance their new car.1
With these high costs and vehicle depreciation, Texas drivers who finance or lease a vehicle could be on the hook financially after a total loss if an insurer’s payout doesn’t cover the remaining loan balance. Gap insurance, or guaranteed asset protection, helps drivers cover that financial gap.
How gap insurance works
When you finance or lease a vehicle, you’re in a financial agreement with a creditor and are responsible for monthly payments. But while you’re paying down the loan or keeping up with the lease, your car loses value quickly thanks to depreciation.
If you’re a car theft victim or involved in an accident with a total loss of your vehicle, your auto loan or lease doesn’t magically disappear. Collision coverage and comprehensive coverage often help cover some of the cost of replacing your vehicle.
But your insurance company will only pay the actual cash value of your car — an amount that’s often less than what you still owe on a loan or lease. You’ll still owe your lender or leasing company the full balance on your loan or lease.2
Gap insurance coverage ensures that you won’t have to pay any remaining balance on your auto loan or lease out of your own pocket. Also called payoff coverage, gap insurance pays out the difference between your loan amount and the current value of your car. That way, you’re not stuck making loan or lease payments on a totaled vehicle.
What gap insurance covers in Texas
Gap insurance in Texas provides financial protection if you have an auto lease or loan, covering the “gap” between an insurance payout and what you owe a lender. The coverage only kicks in if someone steals your vehicle or your insurer declares it a total loss after an accident or other covered peril. So, if there’s a “gap” between the insurance payout and loan amount, this coverage helps pay the rest.
Here’s an example of how gap insurance can help protect you financially.
Let’s say you have a $30,000 auto loan. You get in an accident resulting in a total loss and file a claim with your insurance company. Given the actual cash value of your car, the insurance payout is $26,000, and you still owe $4,000 to the lender. If you have gap coverage, the remaining $4,000 would be covered after paying your deductible.
Without gap insurance, paying thousands of dollars out of pocket for a totaled car could hurt your finances and make it hard to get a replacement vehicle.
The good news is you don’t need to keep gap insurance forever. Once your loan amount drops below your vehicle’s actual value, you can cancel gap coverage.
What gap insurance doesn’t cover
Before signing up for gap insurance, it’s important to know that it doesn’t cover the following:
Your deductible
Damage to your vehicle if your insurer doesn’t deem it a total loss
Funds or down payment to purchase a new vehicle
Difficulty making loan payments
Unpaid fees or interest on your auto loan or lease
Rental car expenses
Read your gap insurance policy carefully or talk to an agent to make sure you understand your gap coverage and what exclusions may apply.
Best gap insurance companies in Texas
Texas drivers can choose from many different companies when shopping for auto insurance. But not all insurers offer gap insurance. Here are some of the top options if you want to get gap insurance in Texas based on rates, ratings, coverage, and discounts.
Allstate
Nationwide
Liberty Mutual
Gap insurance vs. full coverage
Gap insurance only covers the difference between your vehicle’s value and your insurance payout in the event of a total loss, like a theft or accident. Full-coverage insurance, on the other hand, protects you financially if you cause an accident, injuries, damage property, or vandalism, hail, or other covered perils damage your vehicle.3
Full-coverage insurance includes liability coverage, comprehensive coverage, and collision coverage. Gap insurance isn’t part of the coverage, but you can add it for an extra cost if the insurer offers it.
If you have full coverage, you only need gap insurance if you’re financing or leasing the car and the loan amount is greater than the vehicle’s value.
Who needs gap insurance in Texas?
Texas law doesn’t require drivers to have gap insurance. But it’s not something you should immediately skip out on — especially if you finance or lease your vehicle.4 Some situations in which it makes sense to get gap insurance include:
Your down payment was less than 20%.
You’re leasing your vehicle.
Your repayment term exceeds 60 months.
You rolled over negative equity into your new car loan.
The type of vehicle you drive depreciates more quickly.
Gap insurance products are only useful if your auto loan exceeds the car’s value. Once that switches and your loan amount is less than the car’s actual cash value, you can cancel your gap coverage.
You likely don’t need gap insurance if:
You own your vehicle outright.
You made a significant down payment.
Your remaining loan balance is less than the car is worth.
How to buy gap insurance in Texas
You can get gap insurance through the dealership or your lender. When you finance a car, the dealership or financial institution may offer you gap insurance. While this may seem like a convenient option, it’s often cheaper to buy coverage through your insurer.
Not all insurers offer gap insurance, but if this add-on coverage is available from your insurer, it’ll add about $20–$40 per year to your annual premium. Start by asking your insurance company if it offers gap insurance. If not, compare quotes from insurers that offer gap insurance in Texas.
Texas drivers can also purchase gap insurance as a stand-alone product from a car dealer or lending company, but costs can range from about $200–$300 per year. So it’s usually cheaper to add the coverage to an existing auto policy.
Gap insurance in Texas FAQs
If you’re considering getting gap coverage in Texas, here’s some additional information that may help you decide if this coverage is right for you.
Does Texas require gap insurance?
No. The state of Texas doesn’t require you to get gap insurance, although it’s fairly standard in leasing agreements that gap insurance is required.
How do you file a gap insurance claim in Texas?
Drivers with gap insurance coverage who have a qualifying event, like a stolen vehicle or total loss, must file a gap insurance claim. Contact your insurer or other gap insurance provider for specifics on what’s needed to file a claim and if any deadlines or exceptions apply.
How much is gap insurance at a Texas car dealership?
The cost of gap insurance in Texas at a car dealership can vary, but you may pay up to $700. When you purchase gap insurance at a car dealership, it’s generally more expensive than adding gap insurance to your pre-existing coverage from a credit union or insurer.
Who’s eligible to purchase gap insurance in Texas?
Anyone can purchase gap insurance in Texas. But it’s usually only required if you lease or finance your vehicle. Once you owe less on the vehicle than its actual cash value, you can drop gap insurance coverage.
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