When considering gap insurance in Texas, it is good to know exactly what gap insurance coverage is all about and how it works. Gap insurance, also referred to as a debt cancellation agreement or a gap waiver, is a valuable option for drivers who have new vehicles.
How Does Gap Insurance in Texas Work?
Gap insurance in Texas works much the same as it does in other states. Once a vehicle is purchased or leased, it begins to depreciate. Over time, its value decreases. At some point, the vehicle’s value may become less than what is owed on the loan or lease. This is where gap insurance is used. The difference, or “gap,” between the vehicle’s actual cash value and what is still owed is covered by the gap insurance, which means payments will no longer be due.
Gap insurance is beneficial for those with new vehicles. It is not as beneficial for older or used vehicles. If gap insurance is not purchased and the vehicle is stolen or totaled, a check is usually issued for the vehicle’s actual cash value, which has decreased due to depreciation. If the vehicle’s value has decreased and is less than the loan or lease amount, the policyholder will still be responsible for paying off the loan.
Is Gap Insurance Required in Texas?
Unlike states that require gap insurance for vehicles that are leased or that carry a loan, gap insurance is not a requirement in Texas. Requiring someone to have gap insurance before leasing or generating a loan to buy a vehicle in Texas is prohibited. If gap insurance is being purchased, whether it is a lease agreement or a retail installment loan contract, Texas law limits how much can be charged. Currently, the cost is limited to 5% of the amount of the loan.
Gap Insurance Texas Terms and Conditions
Before signing the agreement, review the terms and conditions of your gap insurance policy to ensure it contains the necessary information required by the state of Texas.
- Cost of the insurance
- Length of the agreement in terms of months or years
- Instructions for filing a claim
- Time frame for filing a claim
- Method of determining how the claim is calculated when the vehicle is considered a total loss
- Process for getting a refund if the gap insurance is canceled
- Steps for canceling gap insurance coverage
Where To Buy Gap Insurance Texas
There are two primary options for getting gap insurance. One way is through the many Texas insurance companies authorized to sell gap insurance. The other option is to buy stand-alone gap insurance through the dealership. If you choose to get the insurance through an insurance company, it is important to compare quotes from several companies against each other to determine that you’re getting the best price. It is also important to make certain the gap insurance covers all the incidents that could result in the loss of the vehicle.
If the dealership is offering gap insurance, it is also important to compare their quote against those of insurance companies. Gap coverage via the dealership is generally more expensive than getting it through an insurance company. According to information from Value Penguin, the price range for gap insurance through the dealership is estimated between $500 to $1,000 or more, depending on the dealership’s rates.
Is Gap Insurance Worth It?
For those who have a balance due on their loan or lease agreement, gap insurance is beneficial. The size of the down payment that’s made against the loan, the length of time that the loan covers, such as 4 to 5 years, and the depreciation of the vehicle are important factors to consider when deciding if gap insurance is worth it. Other reasons include the following:
- If the car is stolen or deemed a total loss, you aren’t in a financial position to pay off the lease or loan contract.
- The vehicle is driven extensively, which increases its mileage, resulting in decreasing the vehicle’s value.
- The vehicle is considered a luxury make/model or is an electric vehicle.
Keep in mind the difference between the vehicle’s actual cash value and the balance you still owe on the loan or lease is what gap insurance coverage pays for. Knowing these two numbers is important when deciding to purchase gap insurance.
For example, you’ve had your vehicle for a year after getting a loan. The vehicle’s value is $12,000, but the loan balance is $15,000. In this situation, gap insurance is worthwhile. Without gap coverage, if the vehicle is totaled a year after getting the loan, you will be responsible for paying the $3,000 remaining balance, even though the vehicle is no longer in use.
Other factors to consider include the amount of the down payment and the vehicle’s resale value. If both are significantly high enough that in the event something should happen to the vehicle, the amount you owe will not exceed the vehicle’s actual value, you may choose not to buy gap insurance. Also, if your financial situation can support paying off the loan in case of loss or if the vehicle is stolen, buying gap insurance may not be worth it.
Authorized Gap Insurance Companies in Texas
The following is a short list of Texas insurance companies authorized to provide gap coverage.
- American National Property and Casualty Co.
- Balboa Insurance Co.
- Continental Casualty Co.
- Esurance
- First Colonial Insurance Co.
- Great American Insurance Company of New York
- Landcar Casualty Co.
- Nationwide
- Old Republic Insurance Co.
- Progressive
- State National Insurance Co.
- The Hartford
- Universal Underwriters Insurance Co.
- Wesco Insurance Co.
For More Information About Gap Insurance
For Texas drivers with questions about gap insurance coverage, the Texas Department of Insurance has a direct, toll-free number (800-252-3439) to call for information about authorized companies within the state.
Getting gap insurance in Texas is a simple procedure, but like any insurance purchase, it’s important to shop around for the best value. While gap insurance can be a wise decision, everyone’s situation is different, so take the time to be sure that gap insurance is the best decision for you.

At FIXD, our mission is to make car ownership as simple, easy, and affordable as possible. Our research team utilizes the latest automotive data and insights to create tools and resources that help drivers get peace of mind and save money over the life of their car.