Gap Insurance in California: Everything You Need To Know In 2024

Most new cars depreciate by roughly 20% within the first year of purchase. If your car is totaled and you owe more on your loan than the car’s current value, you may have to cover the deficit yourself. Gap coverage is designed to address this issue for drivers in California.

Many customers still struggle to understand how gap coverage functions. To gain a comprehensive understanding of gap insurance, read further.

CCC, an insurance software company, conducted a study revealing that 20% of vehicles have been declared total losses rather than repaired. With the average price of new vehicles reaching $48,759, there’s a significant risk of owing more than your vehicle’s worth, particularly if your initial down payment was minimal.

Gap Insurance VS Full Coverage

Gap insurance and full coverage insurance both extend the potential coverage you receive from your insurer, but they fulfill different roles. Gap insurance covers the disparity between your car’s actual cash value and the amount left on your loan or lease.

In contrast, full coverage encompasses comprehensive and collision coverage, which pay for damages caused by incidents such as fire, theft, vandalism, and collisions with animals. Collision coverage specifically addresses repairs needed after your vehicle collides with another vehicle or object.

How Much Does Gap Insurance Cost?

According to Forbes Advisor, the average annual cost of gap insurance nationwide is $61. In Texas, prices range from $24 to $360 per year, depending on whether you buy it from an insurance company or a dealership. Opting for insurance directly from your insurer is generally more economical, despite state regulations capping dealership prices at 5% of the loan or lease amount.

How Does Gap Insurance Work?

Here’s how gap insurance functions in practice: Imagine buying a new $40,000 car, putting down $5,000, and financing the remainder. After a few years, an accident occurs. If your car is now valued at $20,000 but you still owe $23,000, you face a $3,000 shortfall. Without gap insurance, you’d have to pay this amount yourself. With gap insurance, your insurer would cover the $3,000.

Where Can I Find Gap Insurance In California?

Gap insurance can be bought independently or as an extension to your car insurance policy. Opting for the latter is more economical, typically costing between $40 and $60 per year, whereas stand-alone plans can set you back $500 to $700 upfront.

This list comprises companies authorized to sell gap insurance within California.

• Allstate
• Nationwide
• Progressive
• State Farm
• Travelers
• Clearcover
• Mercury

Do I Need Gap Insurance In California?

California doesn’t mandate gap insurance. In fact, state law prohibits requiring gap insurance for leases or loans. Still, experts advise buying this coverage if you lease or finance a car, especially in specific cases.

It’s recommended to add gap insurance to your auto policy if you’re leasing or financing your vehicle, given its affordability. However, if you’re trying to save money, you could consider skipping it if you don’t meet any of these criteria:

• You made a down payment of less than 20%.
• Your financing terms are 60 months or longer.
• Your vehicle depreciates faster than average.
• You transferred a previous loan balance to your new car loan.