Overview
If your financed or leased vehicle is totaled or stolen, your insurer pays its actual cash value — which is often less than what you still owe the lender. Gap insurance pays the difference so you aren't making payments on a car you no longer have.
Key benefits
- Covers the gap between loan balance and actual cash value
- Especially important for new vehicles and long loan terms
- Usually required on leases
Real-world examples
Totaled new SUV
You owe $34,000 on a new SUV. After a total loss the insurer pays $28,000 in actual cash value. Gap insurance pays the remaining $6,000 to your lender.
Related coverages
Liability Insurance
Required by Texas law — covers the other driver when you're at fault.
Full Coverage Insurance
Liability + collision + comprehensive — the package most lenders require.
Collision Coverage
Repairs your vehicle after a crash — regardless of who's at fault.
Comprehensive Coverage
Protects against theft, hail, vandalism, and animal strikes.