Filing a total loss claim doesn’t have to ruin a good night’s sleep or break the bank. 

After you buy a new car, the value of the vehicle goes down 20 percent within the first year. If you’re financing it, this depreciation can create a significant gap between your car’s actual cash value (ACV) and what you owe on it. Gap insurance is a handy add-on that covers the difference between the vehicle’s ACV and your car loan amount in case of a total loss. You don’t want to have to keep making loan payments on a car you no longer have, right? 

In only a few clicks, Insurify can help you find the best car insurance coverage to make sure that never happens to you. 

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What is gap insurance

Gap insurance is an optional coverage that you can add to your insurance policy to protect yourself from depreciation. GAP stands for “guaranteed asset protection” or “guaranteed auto protection.” The word “gap” also refers to the difference between the actual cash value of your car at the time of the total loss and how much you owe on your auto loan or lease.  

For example, you finance $20,000 for a new car. After a few years, it’s now worth $10,000, but you still owe $15,000 on your car loan. If your car is totaled or stolen, your insurer will cover the actual cash value$10,000leaving you $5,000 in debt. Gap insurance covers the difference between the ACV and your loan balance (in this case, $5,000), protecting you from having to pay off a car you no longer drive. 

>>> MORE: Guide to Car Insurance Without a License

Who should buy gap insurance in California

Being upside down (when your car is worth less than what you owe on it) can be risky. So, is gap insurance worth it? A gap insurance policy is a good option for you in the following circumstances: 

  • You’re leasing or taking out a loan for your car. And if you’re financing extras such as service plans and extended warranties, your car will depreciate faster. 
  • You made a lower down payment. If your down payment is less than 20 percent, your negative equity (actual cash value minus the loan amount) significantly increases as soon as you sign the paperwork for your new car
  • You have a long-term loan or leasing agreement. If your financing is going to take 60 months or longer, you have a higher chance of owing more than the value of your car
  • You have negative equity from your last car loan. If your loan rolled over, gap insurance coverage can help you protect yourself from being upside down on your loan. 
  • You’re planning to drive long distances. How many miles you drive directly corresponds to how much depreciation your car takes. 
  • You are a new driver. If you’re not experienced at the wheel, you may have a higher risk of accidents that result in total loss
  • You drive a luxury vehicle. Luxury cars depreciate faster than other cars, so gap insurance may come in handy if it’s totaled. 

However, gap insurance is not for everyone. You can skip gap insurance if: 

  • You own your car. If you don’t have to pay off the auto loan or lease, you don’t need gap insurance because you’ll never be upside down
  • You made a down payment of over 20 percent. If there’s only a small chance that you’ll end up with negative equity, you may not need gap insurance

California Gap Insurance Laws

Gap insurance is not required by California law. It is an optional car insurance policy you may choose to add to your full coverage. However, if you’re leasing your car, some car lenders may require gap insurance. It’s legal for the lenders to require gap insurance as a part of your agreement in California

It’s important to know that some car dealerships may try to tell you that you’re required to get gap insurance with them, which is not accurate. If this happens, remember that you have a legal right to say no and use a car insurance comparison tool like Insurify to find affordable gap insurance that gives you the protection you need or opt out. You should also always check your paperwork to make sure you don’t already have gap insurance included in your plan.

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How much gap insurance do I need in California?

According to California law, a vehicle is totaled when it is “uneconomical to repair.” When shopping for gap insurance, you should estimate how much negative equity you anticipate your new vehicle having over time and make sure that your gap insurance provider is offering enough coverage. 

How Gap Insurance Works in California

When it comes to gap insurance in California, there are a few things to know. 

  • You can only add gap insurance to your policy if you already have both collision coverage and comprehensive insurance.
  • Gap insurance rarely covers the deductible
  • Gap insurance coverage works regardless of fault in an accident. 
  • Some insurance companies don’t offer gap insurance coverage for used cars

 

Gap insurance in California covers: 

  • Negative equity: the difference between the actual cash value of the car and what you owe on it 
  • Theft: you can make a gap insurance claim if your car gets stolen

 

Gap insurance in California doesn’t cover: 

  • Repairs to your vehicle if it’s not a total loss: You can use your comprehensive coverage and collision insurance for that. 
  • Medical bills or lost wages: If you sustain bodily injuries, gap insurance won’t cover doctor visits or lost wages. It only applies to vehicle damage. 
  • The value of your car or loan balance if your vehicle is repossessed
  • Depreciation after a non-totaled accident: If you have an accident that does not result in a total loss, gap insurance will not cover the decrease in your vehicle’s value. 

How Much Gap Insurance Costs in California

Getting gap insurance is an affordable way to protect yourself from having an unpleasant situation turn worse. This is where you can get gap insurance in California

  • Car dealerships 
  • Lenders
  • Banks and credit unions 
  • Car insurance companies as a stand-alone policy  
  • As an add-on to your car insurance policy (if your auto insurance company offers it) 

Car dealerships are the most expensive way to get gap insurance and can cost around $500–$700 a year. Lenders and banks/credit unions could add gap insurance to your loan and make you pay interest on it. You could also get gap insurance as a stand-alone policy, which would cost a one-time fee of around $200–$300. 

The best way to get gap insurance is through the same auto insurer you use to get your car insurance. This way, you can expect to pay only around $5 a month, or $60 a year, for gap insurance, hundreds less than if you get it through a car dealership

How to Buy Gap Insurance in California 

Getting your gap insurance from the car dealership or a lender means spending way more money than you have to. As a California driver, you’re better off using Insurify to compare car insurance quotes and policies to find the best deal on gap insurance that will provide you with the protection you deserve without making you overpay. 

Do you already have gap insurance that you got from the car dealer? Don’t worry; you can likely cancel your policy and use Insurify to find a better one. 

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>>> MORE: Cheapest Car Insurance in California

Best Companies for Gap Insurance in California 

If you want to protect yourself from having to pay for a vehicle you no longer have and do not want to get pricey gap insurance from the car dealership or a lender, there are many options in California that offer gap insurance. You can use this table to compare insurance rates and choose the best auto insurance policy for you. 

California Insurance Company  Monthly Premium for Leased Cars
Progressive $153.00
Travelers $155.00
SafeAuto $186.00
Freedom National  $199.00
Safeco  $204.00
Anchor Motor Club $207.00
Aspire $245.00
Bluefire $259.00
Stillwater Auto $273.00
Sun Coast  $276.00
Kemper $292.00
Bristol West  $343.00
Infinity  $457.00
Dairyland $476.00
Pronto $601.00

Check out our piece on the best gap insurance companies for more information!

Frequently Asked Questions: Gap Insurance in California

Does California law require gap insurance?

No, California law doesn’t require gap insurance. It’s an optional coverage you can include if you already have collision insurance and comprehensive coverage. Some slick car dealers may tell you that you’re required to get gap insurance through their dealership, but that’s not accurate.

Do you get money back from gap insurance once you’ve paid off your car?

It’s possible to get your gap insurance refunded in California. Even though you will not get your full gap insurance coverage refunded when you pay off your vehicle, you’re entitled to the unused portion of your gap insurance premium if you pay it in advance and pay off your vehicle early.

Where can I find cheap gap insurance in California?

When shopping for gap insurance in California, you have options. You could get it from a car dealership, a lender, bank or credit union, or an insurance company. However, not all of these options offer the same rates. In just a few minutes, Insurify can help you find the cheapest quotes for maximum coverage.

Updated June 11, 2021

Polina Solovyeva is a freelance copywriter for mission-driven brands and entrepreneurs. When she's not writing, you can find her on a long-distance run or dancing bachata. To learn more, visit her copywriting agency Deeper than Copy at deeperthancopy.com.