Gap Insurance in Arizona: Everything You Need To Know In 2024
We’ve saved shoppers an average of $600 per year on their car insurance.
Typically, new vehicles depreciate by around 20% in the first year of ownership. If your car gets totaled and the remaining loan balance is higher than the car’s value, you might have to cover the shortfall. Gap coverage helps in such situations. In Arizona, drivers can buy gap coverage to avoid this financial risk.
Despite my long experience in insurance, I’ve found that many buyers are unclear about its specifics. To get a comprehensive understanding of gap insurance, read on.
Key Takeaways
Gap insurance pays for the amount left on your car lease or loan that exceeds the car’s current value.
You can buy coverage separately or add it to your existing car insurance.
Purchasing gap coverage from your auto insurance provider is a more economical choice.
What Is Gap Insurance?
In simple terms, Guaranteed Asset Protection (GAP) insurance covers the difference between what your vehicle is worth and what you owe on it through a lease or loan. If your car is totaled in an accident, your insurance will typically only reimburse you for its current market value. If that amount is less than what you owe, you could be responsible for paying the remaining balance.
A study by CCC, an insurance software company, found that 20% of vehicles have been declared total losses rather than repaired since 2018. Given the high average cost of new vehicles in 2023, which was $48,759, it’s easy to find yourself owing more than your vehicle is worth, especially if you didn’t make a substantial down payment.
Note: A vehicle is considered totaled when the expense to fix it surpasses its worth. Insurers typically rely on resources like Kelley Blue Book or NADA to ascertain the actual cash value of your car.
Gap Insurance VS Full Coverage
Gap insurance and full coverage are both insurance options that expand what your insurance provider will pay, but they serve different purposes. Gap insurance covers the difference between what your car is worth and what you owe on your lease or loan.
On the other hand, full coverage includes comprehensive and collision insurance, which pay for damages caused by incidents like fire, theft, vandalism, and collisions with animals. Collision coverage specifically covers repairs if your car hits another vehicle or object.
| Gap Coverage | Full Coverage | |
| Applicable When the Car is Financed/Leased? | Yes | Yes |
| Required? | No | Yes, if the vehicle is financed/leased |
| Cost? | $61 per year | $2,542 per year |
| Deductible Apply? | Yes | Yes |
How Much Does Gap Insurance Cost?
According to Forbes Advisor, the typical national price for gap insurance annually is around $61. In Arizona, the cost can vary from $24 to $360 each year, depending on whether you buy it through an insurer or a car dealership. Opting for insurance directly from your insurer is generally more economical despite the state’s regulation limiting dealership prices to 5% of the loan or lease amount.
How Does Gap Insurance Work?
To explain gap insurance, imagine this situation: You buy a new car for $40,000, put down $5,000, and finance the rest. A few years later, you have an accident. If your car is now worth $20,000, but you still owe $23,000, you’d normally have to cover the $3,000 difference. However, with gap insurance, your insurer would cover that $3,000.
Note: Gap insurance is relevant when your car’s debt exceeds its market value. Once your vehicle loan is settled, the insurer won’t cover more than its current cash worth.
Where Can I Find Gap Insurance In Arizona?
Gap insurance is available as a separate policy or an addition to your car insurance. It’s generally more cost-effective to include it with your existing car insurance, which typically costs $40-$60 annually, compared to stand-alone policies that can range from $500 to $700 upfront.
Note: Dealerships often include gap insurance costs in your loan, which can be much more expensive over time due to added interest. A smarter approach is to include it in your car insurance policy and cancel it once your loan is paid off.
Below is a compilation of several companies authorized to provide gap insurance in Arizona.
- Allstate
- Nationwide
- Progressive
- State Farm
- Travelers
- Clearcover
- Mercury
How To Buy Gap Insurance In Arizona?
If you want to purchase gap insurance in Texas, here's how you can do it.
Decide if you want to buy gap coverage separately or add it to your car insurance policy, and compare prices for both.
Look for a trustworthy company authorized to provide gap insurance in Arizona. If you opt for getting this coverage directly from the dealership when you sign your lease or loan documents, it’s often available as a standalone policy.
Before getting gap insurance from your auto insurer, contact them directly to confirm it’s available.
Include insurance for your rented or financed vehicle.
Do I Need Gap Insurance In Arizona?
Gap insurance isn’t mandated by Arizona law. Actually, Arizona law forbids making gap insurance a requirement for a lease or loan. Despite this, experts suggest getting gap insurance if you lease or finance a car, especially in certain situations. It’s wise to add gap insurance to your auto policy if you lease or finance your car, as it’s typically affordable. However, if you’re on a tight budget, you might skip it if none of these apply:
- Your down payment is less than 20%.
- Your financing lasts 60 months or more.
- Your vehicle depreciates faster than average.
- You rolled over a previous loan balance onto your new car loan.
FAQs
What does gap insurance cover in Arizona?
Gap insurance pays for the shortfall between your vehicle’s worth after an incident and what you owe on your lease or loan. Without it, you’d have to cover this expense yourself.
How much is Gap insurance in Arizona?
In Arizona, the cost of gap insurance varies based on whether you buy it separately or bundle it with your car insurance. Stand-alone plans generally cost a flat fee of $500 to $700, whereas insurance companies typically charge between $40 and $60 annually when added to an existing policy.
Do I need gap insurance if I have full coverage?
Many lenders mandate full coverage when you lease or finance a car. Though gap insurance isn’t always compulsory in these cases, it’s usually advised.
