How much is gap insurance in California

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Gap insurance, offered by providers like Mercury Insurance and Progressive, protects drivers who lease or finance their vehicles by covering the difference between the car’s actual cash value and the remaining loan or lease balance if it’s totaled or stolen. This coverage is also commonly called loan or lease payoff insurance.

Where you live plays a big role in how much you’ll pay for gap insurance. Drivers in California spend about $2,510 per year, or roughly $209 per month, on average.

What is gap insurance?

If your car is declared a total loss or stolen, gap insurance can help cover the difference between its actual cash value and what you still owe on your loan or lease. It’s an optional add-on, but it can save you from paying out of pocket.

When you finance a new car, it’s easy to overlook how quickly it loses value once you drive it off the lot. In many cases, you’ll owe more on your loan than the car is actually worth.

If your car is totaled, your insurer will reimburse you based on its actual cash value, not what you still owe on your loan. If your loan balance is higher than the payout, you’re responsible for covering that gap – unless you have gap insurance, which can cover the difference.

“When an accident or theft occurs, a driver usually gets paid out on the vehicle’s cash value from their standard insurance coverage,” says Richard Howe, a car accident attorney in Atlanta. “However, without gap insurance, you will still be on the hook for the remaining amount in your agreement. Gap insurance provides peace of mind to drivers that they will be financially protected.”

“For instance, let’s say your car is totaled and the actual cash value is determined to be $15,000. However, you still owe $20,000 on your loan. Traditional auto insurance would only cover up to the actual cash value, leaving you with a $5,000 deficit,” says Howe.

“But if you have gap insurance, this difference would be covered, relieving you of the financial burden.”

Average cost of gap insurance in California

Gap insurance rates vary depending on your insurer, location, vehicle type and other factors. In California, drivers pay an average of $2,510 per year or about $209 per month for gap coverage.

“Gap insurance is an optional coverage that is usually very reasonably priced, typically less than $100 per year in additional premium when added as an endorsement to your existing auto insurance policy,” says Mark Friedlander, senior director of media relations at the Insurance Information Institute, an insurance industry trade group.

“Gap insurance rates are based on the amount of your loan or lease agreement. It is typically not based on other common rating factors such as credit record.”

Cheapest gap insurance companies in California

In California, Mercury Insurance provides the most affordable gap insurance, at $2,076 per year or $173 each month. On the other hand, Farmers has the highest premiums at $3,177 annually or $265 monthly.

The chart below shows the average annual cost of gap insurance from various insurers in California.

How much is gap insurance per month in California?

Gap insurance rates vary, but here’s what you can expect to pay for gap insurance every month:

Gap insurance rates in California’s top cities

Your location can greatly impact the cost of gap insurance. The table below highlights the average yearly cost in the top metro areas across California.

Gap insurance rates for different vehicle types

The type of vehicle you drive is a key factor insurers use to determine your gap insurance rate.

“Luxury cars, sports cars, and SUVs – typically with higher purchase prices – might also come with higher gap insurance premiums. That’s because these vehicles tend to depreciate at different rates compared to standard sedans or compact cars, posing a greater risk to insurers,” Howe says.

Your vehicle’s age is one of the important factors that can influence gap insurance rates.

“Newer vehicles, which depreciate more rapidly in the first few years, represent a higher risk for insurers offering gap coverage. As a result, a brand-new car might attract a higher gap insurance premium compared to a model that is several years old,” Howe says.

“This reflects the insurer’s risk assessment, considering the steeper depreciation curve and the greater likelihood of a significant gap needing coverage soon after the purchase.”

When does gap insurance expire?

If you’re still paying off your car or leasing it, gap insurance can give you peace of mind in case it’s totaled and you owe more than it’s worth.

“However, Gap insurance is typically most relevant during the first few years of new car ownership,” Howe says.

That’s usually when you owe more on your loan than the car is worth.

“Most car buyers benefit from gap insurance when the vehicle is less than three model years old. This coverage is usually aligned with the duration of the car loan or lease, often making it unnecessary beyond a few years because the loan balance decreases to fall below the car’s actual cash value,” Howe says.

It’s a good idea to cancel gap coverage when your loan balance is lower than your car’s actual cash value – in fact, many insurers will cancel this coverage after a few years for this exact reason.

Where to buy gap insurance

There are three main ways to get gap coverage, and each has its own pricing and rules.

• Your insurance company: Many national and regional car insurance companies offer gap coverage as an optional add-on to your auto policy, usually for $20 to $40 a year. Since it’s part of your car insurance policy, you can drop it once your loan amount is lower than the car’s actual value.
• Dealership: Many finance managers offer gap insurance, usually for $400 to $700. The charge is added to your loan, which makes it easy, but you’ll likely pay more in the long run because of the added interest amount.
• Banks and credit unions: Some banks and credit unions sometimes sell gap insurance as a standalone policy. It’s typically affordable, but cancellation policies differ – some will refund any unused premium, while others won’t.

Before you buy gap insurance, compare rates, check cancellation policies and look for perks such as deductible reimbursement. Shopping around can help you save big over your loan or lease term.

The bottom line

Comparing gap insurance rates from multiple insurers can save you money. Your state, vehicle type, and personal factors all play a role in pricing, so shopping around could help you find significantly cheaper coverage.

Whether gap insurance makes sense for you depends on the age and value of your financed or leased car. When speaking with insurers or agents, don’t hesitate to ask questions – understanding your coverage fully is key to making the right choice.

Methodology

Insure.com commissioned Quadrant Information Services in 2023 to get annual and monthly gap insurance rates for male and female drivers aged 40 who drive a Honda Accord LX with a clean driving record and good insurance score and carry a full coverage car insurance policy with limits of 100/300/100 and $500 comprehensive/collision deductibles.

To evaluate the rates, we have compared 53,409,632 insurance records from 170 insurance companies across 29,152 cities and 34,588 ZIP codes across the nation.

Shivani Gite

Contributing Writer

 

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Shivani Gite is a personal finance and insurance writer with a degree in journalism and mass communication. She is passionate about making insurance topics easy to understand for people and helping them make better financial decisions.