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Key takeaways
- Gap insurance covers the difference between your claim payout and your remaining loan or lease balance if your car is stolen or totaled in a covered claim.
- Gap insurance is typically less expensive when purchased as a policy endorsement through your insurance company rather than standalone coverage through a dealership or lender.
Once a new car is driven off the dealership’s lot, the clock starts ticking on its depreciation. If your car is totaled or stolen, you may find yourself underwater on your loan, owing more money to the bank than what your insurance paid for your claim. This is when having Florida gap insurance can help. It pays the difference between your claim payout and your remaining loan balance if your newer vehicle is deemed a total loss.
What is gap insurance?
Guaranteed Asset Protection, also known as gap insurance, is an optional coverage you can add to your auto insurance policy when adding a new vehicle to your policy. If your vehicle is financed or on a lease when declared a loss, then your gap coverage could cover whatever you owe that is not covered by the standard car insurance claim.
For example, let’s say you still owe $30,000 on your auto loan for your vehicle, but it has depreciated since you purchased it last year. If your vehicle is totaled and the current market value for your vehicle is $26,000, this is likely to be the amount you’ll receive from your insurance company (minus your deductible). That leaves you on the hook for $4,000 to your lender at a time when you’ll also need to replace your vehicle. In this example, gap insurance would help pay off that additional $4,000 owed on your loan.
How does gap insurance work in Florida?
Gap insurance functions fairly uniformly across all states. In Florida, the high average cost of auto coverage may be a significant factor when it comes to insuring a new vehicle. Some lenders require gap coverage, as well as full coverage, as part of the loan or lease stipulations. If you’re more at risk of becoming upside-down on a car loan, then you may want to consider gap coverage and look out for the following risk indicators:
- You decide to put less than 20 percent down as a downpayment.
- You have an auto loan that is longer than 60 months, such as a 72 or 84-month loan.
- You have accepted a high interest rate.
- You have accepted a loan with front-loaded interest terms.
- You have rolled over a previous car loan balance into your current loan.
- You lease your vehicle
When it comes to used vehicles, gap insurance is less common. Although each car insurance company is different, many require that your car is leased or less than two or three years old to purchase gap insurance. Your gap coverage could also expire after your car reaches a certain age. Some auto insurance companies may also require that you be the original owner of
the car. The best way to find out whether gap insurance works for your vehicle is to speak to an insurance agent.
It’s important to note another form of coverage that might help replace your vehicle if it’s a total loss. New car replacement coverage could help you with the cost of a new car in the event that your old one is totaled. The claim payout would go to you in that case. With gap coverage, the claim payout goes to your lender and covers only the remainder of what is owed on your totaled vehicle. Insurers have different rules regarding these coverage types, and not all will allow both types of coverage in one policy.
When do you use gap insurance?
Gap insurance kicks in when your car is on a lease or financed and declared a total loss. This coverage type does not help with repairs or anything less than a total loss. Even then, gap insurance will not replace or repair your car but will pay off the remainder of what you owe on it up to your gap coverage limit.
For example, let’s say you drive your new car off the lot and into a telephone pole, and your car is damaged beyond repair. You only made a 5 percent down payment on your auto loan, but your car would likely depreciate to about 91 percent of its value immediately, according to Edmunds. That means you would only receive 91 percent of your vehicle’s value from your auto insurer (minus your deductible), but you would owe 95 percent of its value to your lender. Gap coverage would help you pay off the difference.
How much does gap insurance cost?
The cost of gap insurance depends on your vehicle and where you buy it. Not all insurers offer gap coverage, but those that do typically charge less than dealerships. According to the Insurance Information Institute, gap insurance averages $50-$150 per year. If you purchase gap coverage through your insurance company, you will need to cancel the coverage with them directly when the car loan is paid off.
Florida gap insurance vs. other coverage types
Florida gap insurance is just one of the optional types of coverage you are likely to be offered by your auto insurance carrier in Florida. Gap insurance only applies in the specific situations described above, unlike comprehensive and collision coverage, which offer broader coverage and are required in order to add gap insurance to your policy. Loan/lease coverage is a different type of gap insurance, which has a predetermined claim payout cap.
Vehicles on a lease or loan contract typically require full coverage, which includes comprehensive and collision coverage. See how these different coverage types compare below:
| Coverage type | What it covers | Who offers it |
| Gap Insurance | Pays the difference between the ACV and your remaining loan balance, minus past fees, negative equity and deductible. Only covers your car if it is deemed a total loss from a covered claim | Offered by many insurance companies and most dealerships and lenders. |
| Loan/lease coverage | A version of gap insurance that limits the claim payout. A typical cap is 25% of the car’s ACV or $25,000 | Offered by many insurance companies and most dealerships and lenders. |
| Comprehensive coverage | Pays for damage if your car is damaged by something other than a collision, including theft, fire and vandalism. | Sold through insurance companies |
| Collision coverage | Covers damage sustained to your car from an at-fault collision with another vehicle or object. | Sold through insurance companies |
How to buy Florida gap insurance
When purchasing a new car, you will likely be offered gap insurance by your lender or dealership. However, many major car insurance providers in Florida also offer gap insurance. The cost of gap insurance varies by provider, but considering that gap insurance through the dealership and lender is usually priced much higher and includes interest when built into your loan payment, opting for gap insurance through your car insurance company may be a good opportunity for savings.
Gap insurance companies in Florida
Some of the best car insurance companies offering gap coverage in Florida include:
- Allstate: Allstate offers gap insurance to policyholders who are the original owners or leaseholders of a new vehicle.
- Liberty Mutual: To get gap coverage from Liberty Mutual, you must be the vehicle’s first owner and purchase the coverage at the same time as your vehicle.
- Progressive: Instead of gap insurance, Progressive offers Loan/Lease Payoff Coverage. Since this coverage has a limited payout, you will want to make sure it is the right choice for your car, especially if you drive a luxury vehicle.
- Travelers: You must be the original owner and purchase your vehicle from a dealership to be eligible for gap coverage from Travelers.
In addition, although it does not offer traditional gap insurance, State Farm offers a similar program known as Payoff Protector for loans originated by State Farm Bank.
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