Gap insurance isn’t required in California but it bridges the financial gap between your insurance payout and car loan balance if your car is totaled or stolen.
isn’t required in California, but it’s a good idea to buy gap insurance whenever you buy a new car.
Gap insurance in California is an optional type of coverage that can protect you financially if your car is totaled or stolen and your insurance payout doesn’t cover the full amount of your outstanding auto loan or lease balance.
Gap insurance is worthwhile if you owe more than your car is worth—and you cancel it at any time.
Many car insurance companies offer gap insurance for less than $50 per year, often as an add-on to your
of your vehicle—and the outstanding balance of your car loan if your vehicle is totaled or stolen.
If your car is totaled or stolen in California, gap insurance coverage offers an extra level of financial security and peace of mind. Keep in mind:
Depreciation is real: A car loses about 10% of its value the moment it drives off the dealership lot—and about 20% of its value within the first year of ownership.
Most drivers enter negative equity early on in a loan: If you have a car loan, the balance on your loan will likely exceed the car's actual cash value during the early years of ownership.
Collision coverage only pays for your car’s value: If you’re involved in an accident and your vehicle is declared a total loss (or your vehicle is stolen), a standard auto insurance policy will only reimburse you for the actual cash value of your car at the time of the accident.
Simply put, if your car is totaled or stolen and you owe more than it is worth, gap insurance takes care of the difference rather than paying for it out-of-pocket.
In California, you have the option to purchase gap insurance if:
You are the original loan or leaseholder on a new car purchase
, which bans car dealers from charging more than 4% of the loan amount for a GAP waiver—a common alternative to buying gap coverage through your insurer. AB 2311 also:
Allows buyers to cancel their GAP waiver at any time without a penalty
Requires a GAP waiver disclosure to be signed by the buyer
While buying coverage from a dealership is convenient, it’s often more expensive because it’s lumped in your vehicle loan balance—and you’ll pay interest on it. Buying gap insurance through your insurer is cheaper if you want to save.
: Gap coverage can be found under “loan/lease coverage” with Progressive, but it only covers up to 25% of your vehicle’s value to pay the loan balance.
: Gap insurance is available with Liberty Mutual for slightly more than other auto insurance companies. It must be purchased at the same time as your car, and you must be the car's first owner.
: Offers “Payoff Protector Benefit,” which is similar to gap insurance and can be accessed only if you take out a loan through State Farm Bank.
Many other insurers offer gap insurance, so comparing insurance rates between companies, your lender, and your dealership is best to determine who will offer the cheapest rate.
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FAQs
What’s the difference between gap insurance and new car replacement coverage?
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Gap insurance covers the difference between the vehicle's actual cash value at the time of the accident and the remaining loan amount. In contrast, new car replacement insurance pays for the full cost of a new car of the same make and model—minus the deductible.
Do you need gap insurance in California?
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Gap insurance isn't required under California state law and auto lenders can’t require it, but there are certain situations where it can be helpful. For example, if you had a small down payment on a new vehicle or you have a lengthy loan term, gap insurance is a smart investment.
What are the cons of gap insurance?
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The main drawback of gap insurance is the cost—especially if you buy your gap coverage from a car dealer. While it might seem convenient to add gap protection at the dealership, you’ll typically pay far more than if you added it to your standard auto insurance policy.