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Texas insurance glossary

Gap insurance

Gap insurance pays the difference between what a totaled vehicle was worth and what is still owed on it, where the loan balance is the larger number.

Sources checked

It exists because a physical damage claim settles on the vehicle’s value while the finance company is owed a balance, and a new vehicle can be worth less than its loan for the first years of the term.

Texas sells two different things under the name. One is an insurance product regulated as insurance. The other is a debt cancellation agreement written into a retail installment contract by the dealer, governed by Texas Finance Code ch. 354 — which among other things forbids offering one where the contract is already protected by gap insurance.

Which one a buyer holds is answered by the paperwork rather than by the word on the invoice.

Sources: Tex. Fin. Code ch. 354 — debt cancellation agreements on vehicle installment sales; TDI — automobile insurance guide (CB020). Verified .

A definition, not legal advice and not a quote. Rules and figures change; confirm your own situation against the source named above, or with us, before you act on it. Last checked .

See also

  • Collision coverage Collision coverage pays to repair or replace the insured’s own vehicle after it hits another vehicle or an object, or overturns, whoever was at fault.
  • Comprehensive coverage Comprehensive coverage pays for damage to the insured’s own vehicle from causes other than collision, such as theft, hail, fire, flood, vandalism and animal strikes.
  • Declarations page The declarations page is the summary at the front of a policy naming the insured, the vehicles or property, the coverages, the limits, the deductibles and the term.
  • Salvage title A salvage title is the Texas ownership document for a vehicle damaged badly enough that its repair cost approaches its value, or brought in on an out-of-state salvage document.

Where this is handled

Knowing what a coverage is called is not the same as knowing what is on your policy. One independent agency can read your declarations page with you and compare the markets that will write your record.

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