State Farm Gap Insurance – The Insurance Your Vehicle Needs

Apart from vintage and collectible automobiles, all automobiles depreciate in value over time. If you've financed your vehicle, you might want to think about gap insurance.

Gap insurance is a type of optional policy that covers consumers who lease or loan their cars and owe more money than they are worth. It’s also known as guaranteed asset protection, and it aids in the recovery of the difference between what you owe and what your insurance provider pays you after a total loss.

Only if you finance your automobile do you need gap insurance. Understanding how it works will assist you in calculating your possible obligation and determining whether or not it is required.

What is gap insurance?

Gap insurance is a type of optional car insurance that pays the difference between the amount due on a vehicle and its actual cash value (ACV) if it is totaled, damaged, or stolen as a result of a covered claim.

If you’re thinking about leasing or buying a car, or if you’ve already done so, you might be asking if you should get gap insurance and where to get it.

Gap insurance is often a driver’s optional coverage. However, in some areas, a car dealership is obligated to provide gap insurance at the time of purchase.

Let’s pretend you’ve been in an accident and your car is beyond repair and needs to be replaced. Your auto loan balance is still $18,000, but the vehicle is now only worth $15,000. After deducting deductibles, gap insurance would cover the $3,000 difference between what you owe on your car and its current market value. The deductible is also covered by some insurance.

Remember that gap insurance normally only applies to totaled or stolen automobiles that are brand new or models less than a year old. Even if the borrowed amount is greater than the vehicle’s value, it does not cover accidents, damages, repairs, or a sale or trade-in. It will also not assist you in purchasing a new automobile.

How much is gap insurance?

Gap insurance is available through a variety of sources, the most common of which are the dealership or lender that is financing your automobile, or directly from an auto insurance provider. When compared to adding gap coverage to your car insurance policy, getting it from the dealership or lender is usually more expensive.

However, a few things may influence the cost of gap insurance. Your insurer will most likely examine your vehicle’s actual cash value (ACV), geographic region, age, and auto insurance claims history, among other things. To determine if gap insurance is the correct financial protection for you, ask your auto insurer if it offers it and how much it would cost based on your scenario.

Is gap insurance worth it?

Gap insurance is recommended by lenders or auto insurance companies for new vehicles when or if:

  • The auto loan has a length of five years or longer
  • The loan has a high-interest rate because the principal on the vehicle will take longer to pay down versus the depreciation
  • You paid a low down payment, typically less than 20%

Other situations in which gap insurance might not be necessary include:

  • When there was a large down payment
  • If the initial loan term was short, say three years or less.

You can terminate the coverage at any time, but it’s usually only recommended when the balance due on the vehicle is less than its market worth. Consider the cost of risk if you’re not sure if gap insurance is worth it. Gap insurance is relatively cheap, and it may often be added to an existing full-coverage policy for a small annual fee. That might be a lot less than the gap between the value of your automobile and the amount you repay in the event of a serious accident.

Gap insurance for leased cars

Leased cars, like any other car or SUV, depreciate quickly. If you did not put down much money and still owe a significant amount on your total lease payment, you will most certainly owe more than the vehicle is worth if you get into an accident. Gap Insurance for your lease may be a wise financial move in this circumstance.

To establish if you have a gap, compare your overall cost — including taxes and anything else you folded into the lease — to the vehicle’s MSRP, just like you would with a purchased automobile.

And, just as with a new car, the gap between what you owe and what the car is worth narrows as you make monthly payments and the car depreciates. As a result, you may not require coverage for the duration of your lease. Depending on your leasing agreement, you may only need it for a few months.

Frequently asked questions

  • How do I get the best deal on gap insurance?

Gap insurance can be purchased through the dealership, a traditional vehicle insurer, or a specialty gap insurance business.

For some drivers, a dealership-based gap insurance coverage is too pricey to justify, even if it is a convenient choice. Shop around at the dealership, vehicle insurers, and gap insurance businesses; your greatest offer might come from your current car insurance provider. If you already have comprehensive coverage, gap insurance may be available for a small annual fee.

  • Do you get money back from gap insurance?

You may be entitled to a reimbursement of the unused amount of your gap insurance if you pay off a vehicle loan early. Some jurisdictions require insurers to repay premiums if a 36-month loan with 36-month gap coverage is paid in 24 months, for example.

In rare situations, an insurer may fail to notify you if you are eligible for a refund. Keep your payback letter, the original contract or insurance paperwork, and an odometer disclosure statement with you at all times. Before purchasing gap insurance, it is critical to understand an insurer’s refund policy. It may be beneficial to contact your state’s commerce department or insurance commissioner’s office ahead of time to learn about your state’s regulations or what to do if your insurer fails to meet your expectations.

  • How does gap insurance work if your car is totaled?

Only the difference between the real cash value of a car at the time of a complete loss claim and the current amount still outstanding on an auto loan is covered by gap insurance. Total loss can differ depending on state law and/or insurance provider.

  • Do I need gap insurance if I have full coverage?

While you may believe your auto insurance coverage is comprehensive, most motor insurers do not offer a single “full coverage” policy that is meant to protect you against every eventuality. Instead, combining several forms of coverage (e.g., liability, collision, and comprehensive) can provide more protection. Adding gap insurance to existing coverage can provide some drivers with additional peace of mind. However, each driver’s coverage requirements and benefits will differ significantly.

When do you need gap insurance?

There is no reason to get gap coverage if your vehicle is not financed. Gap coverage may be a smart idea if you finance your vehicle, but it depends on how much you drive and how rapidly your automobile depreciates.

Keep in mind that automobiles depreciate quickly. Many automobiles depreciate 20% or more in the first year of ownership, according to the Insurance Information Institute. If you don’t put down a substantial deposit on a car, the amount you owe in auto payments can quickly exceed the value of the vehicle.

You should consider gap insurance coverage if:

  • You made a small down payment
  • You have a long financial period
  • You drive a lot
  • You purchased a vehicle that depreciates quickly

One last thing to keep in mind is that you will typically need to purchase gap coverage while your vehicle is less than three model years old.

Pros and cons of gap insurance

In some cases, gap insurance can provide a significant level of protection, but it is an additional cost to consider. Here are some factors to consider if you are not compelled to get gap insurance but have the option:

Pros

  • Gap insurance means you can walk away from an accident with a less financial burden.
  • You can potentially purchase a more expensive vehicle with less worry.
  • The annual cost is relatively low, quite often $100 or less.

Cons

  • At a certain point, the difference between what you owe and the car’s value will drop to the point that it might not be worth having.
  • It is an extra expense on top of monthly payments and regular upkeep.
  • If you pay a low price, to begin with, it might not be necessary.

Which companies offer gap insurance, and how much does it cost?

Gap insurance is available from most major car insurance companies in some form, though many have restrictions on which vehicles they will insure. Geico is the only big insurer that does not provide any gap coverage.

Gap insurance from an insurance company is usually not particularly expensive, thus we recommend that drivers who would profit from it purchase it.

Insurer Does it offer gap insurance? Limitations
State Farm Yes Only vehicles financed through State Farm Bank
Progressive Yes Up to 25% of actual cash value (lease/loan coverage)
Allstate Yes New vehicles only
Esurance Yes Up to 25% of actual cash value (lease/loan coverage)
Farmers Yes New vehicles only
Travelers Yes New vehicles only
Nationwide Yes
21st Century Yes Only available in AZ, CO, ID, IA, KY, MT, NM, OR, NE, TN, UT, WA and WI
USAA Yes Only vehicles financed with a USAA auto loan
Geico No

How much does gap insurance cost?

According to the Insurance Information Institute, auto insurers normally charge a few dollars per month or roughly $20 per year for gap insurance. Your cost is determined by a variety of criteria, including the worth of your vehicle. You’ll also need to purchase collision and comprehensive coverage. Compare auto insurance prices from at least three different companies to find the best one for you.

According to United Policyholders, a nonprofit consumer group, lenders charge a fixed premium of $500 to $700 for gap insurance, though credit unions may charge less.

Keep in mind that if you add coverage to your loan, you’ll have to pay interest on it as well. According to Edmunds, the average financing rate on a new automobile is about 6%. This means that three years of gap coverage from a dealer might cost over $800 versus $60 from your auto insurer.

Prices and interest rates vary, so make sure to compare prices with your dealer and car insurance provider.

How is gap insurance calculated?

Lenders and dealers figure out how much gap insurance would cost you depending on your loan and the estimated depreciation of your vehicle. For larger debts, gap insurance can be more expensive. Car insurance providers figure out how much gap insurance will cost you depending on your vehicle and driving history.

Does gap insurance always payout?

Only if your complete loss claim is approved and the settlement you receive for your vehicle does not cover your outstanding loan does gap insurance kick in. Gap insurance can also pay the difference between their insurance company’s settlement offer and the outstanding debt if another driver was at fault.

Some gap insurance policies have a cap on how much you can get in total. Progressive’s gap insurance policy, for example, covers up to 25% of the vehicle’s ACV. If your car has depreciated significantly, this gap payment may not be enough to cover the entire loan.

State Farm – The place you should buy your gap insurance from

State Farm, the nation’s largest vehicle insurer, does not offer gap insurance, but it does have a feature called Payoff Protector that anyone who gets a car loan from a State Farm bank (a partnership with US Bank) is eligible for. Payoff Protector is only applicable to full-coverage vehicle insurance, although it is not required that the policy be underwritten by State Farm. If your loan is from State Farm, you are eligible for Payoff Protector at no additional cost, even if your motor insurance policy is written by a different insurance carrier.

How much is State Farm car insurance?

According to our annual survey of the Cheapest Car Insurance Companies, most drivers can save money with State Farm. State Farm had an average auto insurance rate of $1,168, according to our research. After USAA and Geico, this is the third-lowest average rate in our survey. This pricing also indicates savings when compared to our study’s national average rate of $1,320.

Keep in mind that your auto insurance premiums will vary depending on your unique circumstances. Even though State Farm has some of the best rates, our research discovered that there are a few outliers for certain demographic groups.

State Farm has various categories for auto insurance rates with rates that are up to 15% less than the national averages. These categories include:

  • State Farm rates for teen drivers
  • State Farm rates for young adults
  • State Farm rates for seniors
  • State Farm rates for drivers with poor credit
  • State Farm rates for good drivers
  • State Farm rates after a speeding ticket
  • State Farm rates after an accident
  • State Farm rates after a DUI

How much is high coverage car insurance with State Farm?

While the national average rate for high coverage is around $1,397, State Farm offers an insurance rate of $1,256 for high coverage car insurance.

So, if you’re seeking insurance with additional coverage, State Farm is near the top of our list. Only two competitors, USAA and Geico, have lower average rates for this type of coverage, according to our research.

How much is minimum coverage car insurance with State Farm?

On the other hand, the national average for  minimum coverage is coverage car insurance is $1,248, State Farm offers the same for $1,086. A stellar difference, isn’t it?

State Farm,as per our research, is one of the more affordable auto insurance carriers for consumers looking for a basic policy. In this category, USAA leads the pack, with Geico coming in second, although State Farm is a decent option for most other drivers.

State Farm car insurance discounts

Customers and potential customers of State Farm can save money on their insurance by qualifying for one or more discounts. State Farm offers incentives similar to those offered by the top auto insurance providers in our rankings, such as discounts for good students and accident-free drivers. State Farm, for example, offers two opt-in, app-based safe driving programs. If the software recognizes a trend of safe driving habits, it may result in discounts.

Steer Clear is a safe driving program for policyholders under the age of 25 that uses an app. Keep in mind that discounts vary by state, so policyholders should always check with State Farm to see if they are eligible.

  • Student/Good student
  • Student away from home/storage
  • Bundling/Multi-policy
  • Multi-vehicle
  • Good driver/Clean record
  • Defensive driving course
  • New car/Safety/Anti-theft equipment
  • Low mileage
  • Tracking device program

What is the insurance code for State Farm?

At State Farm, privacy and security are valued and a variety of measures are used to protect personal identity. A 10-digit code called a key code is developed to facilitate quick identification of your current bill. Each time a new bill is generated, State Farm creates a new key code to be associated with that bill. The key code doesn’t provide anyone access to your information, account, or policies. The key code is only used for making a one-time insurance payment over the phone or online.

The bottom line

Gap coverage can be purchased from the dealer, but it’s usually less expensive to add it to a current policy. While it is recommended to request no-obligation quotes from top insurers to find out what your rates might be, auto insurance rates offered by State Farm, despite not offering traditional gap insurance options, ensures you save more money on car insurance premiums than you would on most other gap insurances.

Charles Bains

Charles Bains

Charles Bains started his insurance career as a marketing intern before pounding the pavement as a commercial lines agent in Orlando, FL. As an industry journalist, his articles have appeared in a variety of trade publications. His insurance television career, short-lived but glorious, once saw him serve as the expert adviser on an insurance-themed infomercial (yes, you read that correctly). Having recently worked for various organizations, coupled with his broader insurance knowledge, Charles is able to understand our client’s needs and guide them accordingly. He is a gem for Insurance Noon as his wide area of expertise and experience have been beneficial in conducting further researches to come up with solutions and writing them in a manner which is easy for everyone including beginners to comprehend.