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Texas Department of Insurance
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Do you need gap insurance for your car? How does it work?


Gap insurance covers the difference between what you owe on your car and what it’s worth. You might need it if your car is worth less than what you owe on your car loan. Here are some common questions about gap insurance.

  1. What is the "gap"?

    The “gap” on what you owe on your car and what it's worth can be thousands of dollars if your down payment was less than 20% or you financed your loan for 60 months or more.

    Your car dealer or bank might offer you gap coverage when you buy your car. But check with your insurance agent to see if your company has a better deal.

    Gap products you get from a car dealer or bank might not be insurance. TDI can’t help if you have a problem with these. Read the information that comes with a bank or dealer gap product to know how to get help if you need it.

  2. How could I owe more than what my car is worth?

    New cars lose value fast. As soon as you drive it off the lot, it’s a used car, which means it’s already worth less. If your car is stolen or totaled, your auto insurance will pay you what the car is currently worth – not what you originally paid or how much you still owe.

  3. How long do I need gap insurance?

    Cancel the policy when you owe less than your vehicle is worth. This usually takes about two years. Compare how much you owe on your loan with online car value guides.

    If you pay off your loan early or sell the vehicle, it’s time to cancel the policy.

  4. Know about the exclusions

    There are exclusions in most policies that might reduce the amount you get if you have a claim. Read your policy to know what exclusions you have. Some exclusions will reduce the amount you get if you have:
    • Overdue payments.
    • Unpaid finance charges, warranty costs, or balloon payments.
    • A deductible you have to pay before the insurance pays.
    • Damage from a previous accident.
  5. How to question a claim amount

    If you don’t think your gap insurance is paying enough for a claim, talk to your company before agreeing to the settlement.

    If you’re still not happy, you can ask for an appraisal. In the appraisal process, you and the company will pay for appraisers. Check your policy for any deadlines to demand appraisal.

    Learn more about the appraisal process.


Questions? Call us at 800-252-3439.

Last updated: 2/17/2023