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Gap insurance in California

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Key takeaways

  • Gap insurance is specifically designed for drivers with outstanding loan balances on their vehicles.
  • Gap insurance is typically only available for brand-new vehicles or for models that are less than three years old.
  • Gap insurance is different from new car replacement coverage.
  • While many insurance companies offer gap insurance, it is typically more expensive to purchase it from a dealership.

When you purchase a new vehicle with an auto loan, someone at the dealership may recommend you purchase gap insurance. Like other types of car insurance, gap insurance is designed to offer you financial protection, but gap insurance is specifically for drivers with outstanding loan balances. However, purchasing gap insurance from a dealership and adding it to your auto loan may not be the smartest way to spend your money. Below, Bankrate will walk California drivers through everything they need to know about gap insurance, from what it is to how to get it.

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What is gap insurance?

Gap coverage covers the difference between what you owe on your auto loan and the payout you receive from your insurer for your vehicle if it is stolen or rendered a total loss. While it does fill in a financial gap, that is not where this coverage gets its name — it actually stands for “guaranteed asset protection.”

It’s easiest to understand gap insurance with an example. Let’s say you used a $25,000 auto loan to purchase your new vehicle, and that you carry a full coverage car insurance policy. Your vehicle is stolen from your driveway, and you file a claim with your insurance provider. Your insurer, however, factors depreciation into your claim payout and only gives you $20,000. In this instance, gap insurance would cover the remaining $5,000 you owe on your auto loan.

Typically, gap insurance is only available for brand-new vehicles or for models that are less than three years old. If you’re a driver in the Golden State looking for a new set of wheels, buying gap insurance has likely crossed your mind. Without gap insurance, your car insurance company is not concerned about the outstanding balance on your auto loan.

How does gap insurance work in California?

Gap insurance in California is generally an option to purchase if:

  • You are the original loan or leaseholder on a new vehicle purchase
  • You have both collision and comprehensive coverage
  • The vehicle is less than two to three model years old

Most people have a misconception about gap coverage and think they can purchase it at any time. Contrary to public opinion, you cannot  buy gap insurance on any vehicle you finance.

Gap coverage is also commonly confused with new car replacement, although they are different things. Gap coverage is a way to financially protect yourself if you have an outstanding loan on your vehicle after a total loss. New car replacement, on the other hand, pays you the value for a new version of your damaged vehicle’s make and model after a total loss. Gap insurance does not pertain to purchasing a new vehicle.

When do you use gap insurance?

In insurance terms, a total loss occurs when the cost to repair your vehicle exceeds its depreciated value (also known as actual cash value, or ACV). If your vehicle is rendered a total loss by an insurance adjuster, your insurance provider will not pay for repairs. Gap insurance may come in handy if the following happens to your new vehicle:

  • Destroyed by fallen tree
  • Totaled in an accident
  • Stolen and never recovered
  • Complete engine failure

Remember, gap insurance is only for total losses; it does not help with smaller repairs or routine maintenance. For instance, if you are T-boned in a parking lot and your car is only mildly damaged, gap coverage would not apply. However, if you have collision insurance, that may help in this instance.

Gap insurance vs other coverage options

There are many types of coverage options you can purchase to protect your vehicle. However, each coverage type pertains to specific situations, and it can be difficult to keep them all straight. In the table below you can see how gap insurance works in California, along with comprehensive and collision coverage.

Gap insurance Comprehensive Collision
What it covers Only covers your car if it is deemed a total loss. Only pays the difference between the depreciated value and your remaining loan balance. Pays for damages if your car is damaged by something other than a collision. Covers events such as fire, wind, falling objects, vandalism, theft, or flood waters. Covers damage sustained to your car from colliding with another vehicle or object, such as a sign, fence or tree.
Who offers it Many insurance companies offer it, but often call it ‘loan/lease coverage.’ Dealerships also sell gap insurance in California. Comprehensive coverage is offered by most, if not all, insurance companies. Collision coverage is offered by most, if not all, insurance companies.

Where to buy gap insurance in California

While shopping, you may hear California gap insurance referred to as loan/lease coverage. Many, but not all, major insurers write gap insurance. For example, State Farm and Geico, two of the largest auto insurance companies in California, are not gap insurance providers.

If you’re buying a new car from a dealership, you might be offered gap insurance before you finalize your purchase. However, most insurance professionals do not recommend purchasing gap insurance at a dealership. Not only does it usually cost more upfront than a gap insurance policy from a regular insurer would, gap insurance from a car dealership is usually added to your auto loan, which means you’d pay interest on it.

Gap insurance companies in California

Luckily, many car insurance companies are also gap insurance companies. If you’re wondering where to buy gap insurance, the list of providers below can be a good place to start:

  • Progressive: National insurance company that offers many types of insurance. Gap coverage can be found under ‘loan/lease’ coverage.
  • Liberty Mutual: You can purchase additional endorsements through Liberty Mutual, including gap coverage. The company also offers numerous discounts.
  • Allstate: As the fourth largest auto insurer in the U.S., it offers eight additional add-on coverages and 10 discounts every driver can take advantage of.
  • Nationwide: Offers multiple usage-based programs that allow customers to personalize their policies so their rates reflect their driving habits.
  • Travelers: Ranks highly in many customer satisfaction surveys and offers a fair amount of discounts you can use to offset your monthly insurance premium.

Frequently asked questions

    • The price for gap insurance will vary depending on where you purchase the coverage. Generally, it is more expensive if it’s purchased through a dealership than through an auto insurer, but it helps to get multiple quotes from different companies.
    • California gap insurance is not required by California state law. However, some financial lenders might require it as a condition of the loan or lease.
    • In most cases, yes, you need to have comprehensive and collision before you can purchase gap coverage.
    • If you have it on your auto policy, you might be able to cancel your gap coverage online. However, you may need to speak directly with an insurance agent to cancel this coverage in some cases.
    • According to Bankrate’s analysis of rate data from Quadrant Information Services, Capital offers the cheapest car insurance in California for full coverage. However, this may not be true for all drivers. To calculate your premium, auto insurers look at dozens of different rating factors, like your driving record, the kind of vehicle you drive, your age, marital status and more. In California, however, insurers are more limited in what they can use to calculate your rate; they are prohibited from using your credit score and gender. Because car insurance is such an individual product, it’s recommended that you shop around and compare quotes to find the cheapest policy.

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