Gap insurance pays the difference between what you owe a lender and your vehicle's actual cash value after a total loss. Texas does not require gap, but most auto lenders do.
Two ways to buy gap
- Dealer gap — sold at signing, financed into the loan, regulated by Texas OCCC
- Insurer gap — added to your auto policy, regulated by Texas Department of Insurance
Pricing comparison
Dealer gap typically costs $700–$900 financed. Insurer gap runs $20–$60 per year and can be cancelled when no longer needed. Insurer gap is almost always the better deal.
Refund rules
Texas Finance Code §348.123 entitles you to a pro-rata refund of dealer gap if you pay off the loan early or cancel within the refund window.
Lease gap
Most Texas lease agreements include gap by default. Verify in writing — some still charge separately.
Frequently asked questions
Is gap insurance required in Texas?
Not by law, but most auto loans require it for financed vehicles.
Can I cancel dealer gap and get a refund?
Yes, on a pro-rata basis under Texas Finance Code §348.123.
This article is for general information only and is not legal or tax advice. For guidance specific to your situation, talk to a licensed Texas insurance agent. Ready to put it into practice? Get a free quote or request a policy review.