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Gap insurance isn't required of drivers in Texas, in fact, the state prohibits a gap waiver to be a requirement of a car lease or loan. However, a gap insurance policy can provide valuable coverage for drivers with new vehicles, as it offers financial protection in the event your car is totaled or stolen. In such a case, your gap waiver would cover any remaining payments on your car loan or lease that exceed your car's actual cash value, or the amount you would normally receive in an accident. If you're shopping for gap insurance, we recommend you first familiarize yourself with Texas' consumer protection laws and the companies legally allowed to offer coverage in the state.
- How Does Gap Insurance Work in Texas?
- Where Can I Buy Gap Insurance in Texas?
- Texas Gap Insurance Laws
How Does Gap Insurance Work in Texas?
Gap insurance, also called a gap waiver or debt cancellation agreement, works in Texas much like it does in any other state. When you buy or lease a new car, the car depreciates in value quickly over the first few years, meaning the amount of money you owe on the vehicle is often greater than its value.
If your car was totaled in an accident, or stolen, the amount of money you would receive from the insurer would only equal the vehicle's actual cash value at the time of the incident. Gap insurance covers the difference between what you owe on the car and its actual cash value, so you don't have to make payments for a vehicle you no longer possess. Therefore gap insurance coverage can be valuable if you have a new car but is not generally worth it if your car is several years old, or if you bought it used.
Where Can I Buy Gap Insurance in Texas?
You can buy gap insurance in Texas either from an insurance company or through the dealership where you purchased your car as a standalone policy. Not all insurers are authorized to offer gap insurance in Texas, but we recommend first getting quotes from your auto insurance company. Coverage directly from insurers is often less-expensive—often around several dollars per month—particularly if the coverage is added to an existing policy. Just make sure the gap waiver covers all forms of loss, such as:
- All accidents
- Floods and other natural disasters
If you're considering buying standalone gap insurance through an auto dealership in Texas, we recommend you compare rates against those from auto insurers. The cost of gap insurance from a dealership may range from around $500 to over $1,000, meaning you may spend significantly more, depending on the dealership's rates. Since the maximum amount a dealership can charge for gap insurance is 5% of the loan value, the cost of coverage for a $30,000 car can be as high as $1,500.
List of Gap Insurance Companies in Texas
The following insurance companies are currently authorized to provide gap insurance coverage in Texas.
- American Modern Home Insurance Co.
- American National Property and Casualty Co.
- American Security Insurance Co.
- Arch Insurance Co.
- Balboa Insurance Co.
- Continental Casualty Co.
- Courtesy Insurance Co.
- Financial American Property and Casualty Insurance Co.
- First Colonial Insurance Co.
- Great American Insurance Co.
- Great American Insurance Company of New York
- Ironshore Indemnity Inc.
- Landcar Casualty Co.
- Lyndon Property Insurance Co.
- Markel Insurance Co.
- MIC Property and Casualty Insurance Corp.
- Ohio Indemnity Co.
- Old Republic Insurance Co.
- Old United Casualty Co.
- Republic Lloyds
- Securian Casualty Co.
- Sentruity Casualty Co.
- Service Lloyds Insurance Co.
- Spinnaker Insurance Co.
- State National Insurance Co.
- Transamerica Casualty Insurance Co.
- United Financial Casualty Co.
- Universal Underwriters Insurance Co.
- Virginia Surety Co.
- Wesco Insurance Co.
- Work First Casualty Co.
Texas Gap Insurance Laws
Gap insurance is not required in the state of Texas, and it can't be required as a condition of receiving an auto loan or lease. If you choose to purchase a gap waiver, Texas law limits the cost of coverage to 5% of the loan amount, assuming you purchased the car, per the retail installment contract. Similarly, if you leased your car, a gap waiver can only cost up to 5% of the adjusted capitalized cost specified in your lease. Once you've purchased the gap waiver, you have at least 30 days during which you can cancel it and receive a full refund.
When you receive a gap waiver agreement, you should review its terms and confirm that it contains the following key information, which Texas law requires to be presented:
- The total cost of the debt cancellation agreement
- The term of the agreement, meaning how many months or years it extends coverage
- The procedure to file a claim with the company, including a phone number and address that you can use to notify the insurer of a claim
- The length of time between when a loss occurs and when you must file a claim in order for it to be considered
- How the insurer will calculate a claim settlement in the event of a total loss
- How the insurer will calculate your gap waiver refund if you decide to cancel the policy
- The procedure to cancel your debt cancellation agreement, if you choose to do so
In the case that your car is totaled or stolen, you will need to file a claim with the company that issued the gap insurance policy, or their designated administrator. Before a claim is paid, Texas law states that the company may require you to provide:
- A debt cancellation request form
- Evidence of the loss or damages, as well as details on payments you've received, either from your own insurer or the other party's, if another person was at-fault for the damage to your car—this lets your gap insurance provider know how much money is still owed.
- If the damages fell under your comprehensive or collision insurance coverage, verification of your insurance deductible
- If a police report was filed in connection with the loss, either to report a theft or notify them of an accident, a copy of the report
- A copy of the damage estimate for your car—you may have to first obtain one if this evidence is requested.
If your claim is approved, your gap insurance company will issue you a settlement amount based upon the remaining installment payments on your loan. There's a limited set of reasons a gap insurance provider can deny a claim in Texas, including:
- The driver was involved in an illegal or grossly negligent act which cause the total loss.
- The vehicle was damaged while involved in a race or speed contest of some kind.
- The car was "lost" due to confiscation by a legal authority, or it received damages after it had been repossessed.
- The loss occurred outside of the U.S. or Canada (meaning coverage may be denied if your car was damaged when driving in Mexico).
- The damages were due to freezing, mechanical breakdown or normal wear and tear on the car.
- The car's primary use was for commercial purposes, such as making deliveries (you would need a commercial auto insurance policy in this case).
On the other hand, if you decide to cancel your gap coverage, you'll receive a refund for any unused premium, as determined on a pro-rata basis. So, for example, if your original term of coverage was 36 months and you paid upfront but canceled your policy after 18 months, you would receive 50% of your payment back.