if their car loan is more than the value of their vehicle. Gap insurance is available to purchase through a dealership, lender, or car insurance company—all of which have pros and cons.

Arizona drivers can purchase their gap insurance from the dealership they purchased the vehicle at or through the bank that financed the

car loan

. While convenient, these options tend to be pretty expensive.

For more affordable gap insurance, Arizona drivers can turn to their insurance company—as long as they offer it. Unfortunately, a surprising amount of blue-chip providers don’t have gap insurance.

So between price and choice, it’s easy to get stuck in the Arizona sand when shopping for gap insurance. Let us help you gain some traction. Here’s everything you need to know about gap insurance and where to buy it in The Grand Canyon State.

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The best gap insurance companies in Arizona

You may have to

switch insurance companies

if you really need gap insurance for your financed vehicle. Which begs the question, do you need it? Let’s find out!

How does gap insurance work in Arizona?

Gap insurance stands for guaranteed asset protection, which means your provider will pay the difference between your car’s

actual cash value

and your remaining loan balance (assuming you have negative equity—more on this next). It works the same way in Arizona as it does in any other state.

However, in order to qualify for gap coverage, you must already have an insurance policy that includes

collision coverage

and

comprehensive coverage

. This is because all the coverages work in tandem with each other. Collision and comprehensive pay out the actual cash value of the vehicle, while gap coverage zeros out whatever’s left on your car loan (we’ll show you an example in the next section).

Along with policy requirements, your vehicle must also qualify for gap insurance. Here’s what car insurance companies typically look for:

The vehicle is less than three years old

The vehicle has no preexisting damage

You are the first owner of the vehicle (some companies do include second-hand vehicles)

The vehicle falls within the insurer’s value and mileage restrictions

Keep in mind: If you're buying a new car, you should review the

minimum coverage requirements

for new car insurance first. Once you gain an understanding of what coverage you need, make sure to look into the

best insurance companies

for your needs.

What does gap insurance cover?

Unfortunately, brand-new vehicles lose 20 to 30% of their value to depreciation in the first twelve months of ownership. So unless you made a significant down payment or are budgeting for sizable monthly payments, you’ll likely have negative equity on your vehicle in the early stages of your financing plan.

Negative equity means your outstanding loan is greater than the actual cash value of your vehicle after depreciation. Luckily, gap insurance is designed specifically for this situation—it’s easier to explain using a real-life example:

Example: You take out a $40,000 loan to purchase a luxury sedan. You decide to protect it with a

full-coverage policy

(collision and comprehensive) and add gap insurance just for good measure. Unfortunately, you hit a patch of black ice and slide off the road. You're fine, but your vehicle is deemed a total loss. You’ve had it for about a year at this point, so your insurance company values the vehicle at $32,000 after depreciation. But you’ve been making minimum payments, so your loan balance is still $38,000—which means there’s $6,000 that still needs to be paid on the loan.

Outcome: Your full-coverage policy will pay out the $32,000. And since you made the wise decision to purchase gap insurance, your provider will also cover the remaining $6,000 on your loan. Without gap insurance, you would have been left making payments on a loan for a car that no longer exists!

MORE:

When your car is totaled and you don’t have gap insurance

Average monthly cost of gap insurance in Arizona

Adding gap insurance to an existing insurance policy will only cost you $2 to $30 per month. However, your exact quote will depend on your vehicle type, Arizona zip code, driving history, and more.

Now, what if you’re purchasing your gap insurance from a dealer or lender? Well, they’ll make it very easy to package into all your paperwork—but not for free. Their prices are closer to the $30 to $50 per-month territory.

Important disclaimer: Remember to

drop gap insurance from your policy

once the actual cash value of your vehicle is greater than your car loan. It’s no longer necessary at that point!

Is gap insurance worth it in Arizona?

Arizona’s minimum car insurance laws

only require drivers to have a 25/50/15 liability insurance policy. Everything after that is entirely optional for the policyholder. Not everyone needs gap insurance, but it’s definitely worth considering if you:

Made a small

down payment

on your new vehicle (less than 20%)

Bought a car with a naturally high depreciation rate (a

BMW

or another

luxury car

)

You drive a lot, increasing the depreciation rate (over 15,000 miles per year)

Have a longer than

average loan term

(72 or 84 months)

Rolled over negative equity from a previous car loan

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Jerry
I was paying $280 for basic full coverage. Jerry found me a Progressive plan for $117 that includes better coverage. This was even better than previous quotes I’d received!” —Faith M.

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