Paying for Texas Gap Insurance
When you are financing your car with a car loan in Texas, you may need to purchase gap insurance coverage to cover the difference between the actual cash value and what is left on the loan. After shopping for a gap coverage that suits your budget from auto insurers, dealerships, or other lending companies, you will be required to pay consideration. Consideration is the price paid in exchange for the fulfillment of a promise according to a contract. In other words - until you pay the premium, the coverage will not begin.
Premium could be paid monthly, semi-annually, or annually depending on the agreement: through an automated platform or manually when the payment is due. Paying your insurance premium guarantees that your policy will be honored in the event of a loss.
However, speak to your Texas-licensed insurance agent if you have questions relating to gap insurance premium payments.
Who Pays for Gap Insurance?
When you purchase your car in Texas, it is your responsibility to cover all the vehicle-related expenses, including premium payments, if you use an auto insurance company. If you use a lender to finance the purchased vehicle, you must pay for gap insurance if the vehicle’s financed amount is higher than the insured value. At the time of purchase, the insured may be offered several options when they would like to make the payments. Most insurers allow payments in full; however, you can typically go with much cheaper monthly, quarterly, semi-annual, or annual payments. If you have a chance to pay the policy in full, you will be eligible for a gap insurance refund, if you pay off or sell the vehicle early. If you pay monthly, there is no refund.
Note: If the insured vehicle owner does not have the required auto insurance coverage in place, the financing bank will usually purchase the needed coverage through their own insurance agent. In this case, the bank pays first and then bills the vehicle owner for it as extra to the monthly payment.
What are the Payment Options for Gap Insurance?
The following are the two major payment options you can explore when paying your gap insurance Texas premium:
- Automatic payment method:
Automatic payment methods have some of the most convenient ways to pay your gap insurance premiums. This method allows the insurers or the dealership to take payments directly from your account. It is an easy and fast way to make monthly or annual payments. Some insurance companies may even waive certain fees if you use Electronic Funds Transfer (EFT). Also, some insurance companies or dealerships will allow the payment of gap insurance premiums via your debit card and credit cards.
- Manual method:
If your car insurance company permits manual payments, you may be able to mail your payment as a check or pay it in cash in person at the physical location of your insurance provider near you. Do not mail cash, because if it gets lost, there is no taking it back. Use checks whenever possible. For check payment, ensure that the check is sent in advance so that you are not faced with late payments. Better still, you can hand-deliver the payment in person to the provider’s location near you. Note: Make sure that the check is endorsed and the insurance policy number is clearly written on the check.
Do not forget that paying your premium is mandatory, and you must avoid defaulting because it can lead to a lapse in your policy. This would typically allow the lender to seek out coverage through their own insurance channels and then bill you for it. If you want to cancel your gap insurance policy, you should either get a replacement coverage first, or make sure with the lender that there is no more gap in the vehicle value that needs to be covered, and then properly inform your insurer officially. This is because having a lapse in your insurance policy will affect the cost of your premium when you intend to purchase another policy. So when considering how best to pay, consider the most convenient option for you that will not incur extra fees or lapse your coverage.
Can I Finance the Gap Insurance Cost?
Yes. You can finance the cost of gap insurance coverage as part of the main auto insurance policy through the insurer or a premium financing company, per Section 651.001. (8) of the Texas Insurance Code. Most private auto insurers offer financing through monthly payments at no extra cost, while some may charge $1-$5 per month extra - to offset the costs of processing the extra payments. Premium financing is an agreement between an insurance premium financing company and an insured, in which the company pays the insured’s premium in advance to the insurance carrier. In turn, the insured pays the insurance premium financing company through an agreed repayment plan. This is usually reserved for commercial auto insurance, which, if not paid in full, is typically financed at an interest.
Is Premium Financing Available for Gap Insurance?
Yes, premium finance is available for gap insurance, but only as part of the larger policy. Even though premium financing is typically available for auto insurance, it is not available for gap insurance plans by themself. This is because only car insurance policies with high premium costs usually qualify for premium financing. Meanwhile, gap insurance coverage by itself is characterized by a low premium, usually an average of 2% to 5% of the collision and comprehensive insurance plan.
Texas gap insurance is typically purchased along with full coverage auto insurance, which is also required as part of getting a car loan.
How Often is Gap Insurance Paid?
How often you pay your gap insurance premium in Texas depends on your finances. You determine whether to pay your premium upfront or monthly based on what is most convenient for you — monthly or annually.
Is Gap Insurance Paid Monthly or Yearly?
Most gap insurance providers in Texas, including auto insurance companies and dealerships, will allow you to choose whether to pay monthly or annually:
Annually: if you choose to pay annually, you will typically get discounts, making it the cheaper option. Annual payments save your auto insurance company the manpower used in processing your payment every month. Annual payment is a good option for the insured, as they will not need to track payments every month.
Monthly Payments: even though annual payment is cheaper, monthly payments also offer certain benefits. A monthly payment is an installment fee spread across the 12 months in a year if it is a 12-month policy term or six months if it is a 6-month policy term. This is ideal for drivers who cannot afford to make annual payments in full. It is also a bit more flexible than a yearly payment structure. For instance, you can easily change your coverage limit if you remove a driver from your car.
Whichever option you pick, ensure you make your payment when due to keep your coverage active and avoid a lapse in coverage.
Can Gap Insurance Premiums be Paid Annually?
Yes, you can choose to pay your gap insurance premium annually. If you pay your premium annually or in full, you may get a discount, making your insurance cost lower. Also, insurers prefer annual payments since they will only have to process your payment once a year instead of receiving and processing premiums monthly.
How Do I Send my Gap Insurance Bill?
You do not need to send anything, as your insurer will take care of everything for you. When your covered car is totaled or stolen, comprehensive insurance or collision coverage will pay the actual cash value (ACV) of the vehicle minus the deductible. If someone else was at fault, their insurance pays and there is no deductible on your part. Meanwhile gap insurance will step in to cover any overage you may owe to the bank if the loan was “upside-down” and the settlement from the auto insurance company did not cover the payoff in full.
Once the vehicle is considered a total loss, the insurer typically keeps it and then resells it to an auction house, to be sold for parts, or to be sent overseas, to be rebuilt and given a new life. In order to take legal possession of the totalled vehicle the insurer must become a legal owner of the title. When the policy shows a lienholder, the insurer contacts the financing bank to obtain a pay-off amount and to request any additional title-transfer documentation. The payments are then completed between the insurer and the bank without the involvement of the insured.
Do I Pay Taxes on Gap Insurance?
No, you do not pay tax on gap insurance. There is no sales tax during the purchase of gap insurance as a product. Also, there is no tax on gap insurance claims payout because taxes may be charged only if the insured makes a profit after the claim payout. When an insurer pays out the claim, it is paid to the lender, not you. Therefore, you can not be charged taxes for a claim payout that does not come to you.
Can you Pay Gap Insurance Late?
It is not advisable to pay your gap insurance premium late. When you fail to pay your gap insurance premium at the due date, your insurance company will notify you. Paying late should be avoided, except when you find yourself in a cash-strapped situation. In this instance, it is advisable to notify your insurance provider about your inability to make payment as at when due. Some insurance companies may require that you pay a late payment fee. Also, paying late means you will be required to pay up within the grace period, usually one to 31 days. Failure to pay during the specific grace period means the policy will be canceled, and your insurance coverage will lapse.
When buying from dealerships, ensure you do not default because some dealerships or other lenders may not have grace periods. Instead, ensure you read and understand your loan agreement to avoid defaulting on payment.
If you are having difficulty understanding the fine print of your policy or loan agreement, speak to a Texas-licensed insurance agent for help.
Does Gap Insurance Have a Grace Period?
Yes, gap insurance policies usually have grace periods, but they are not guaranteed and the duration is set by each insurer. Texas-registered auto insurance companies commonly include a grace period of 10 to 31 days in their gap insurance policies. Irrespective of the grace period, an insured should ensure they pay when their payments are due monthly or annually. Since each provider has a varying grace period, ensure you read the policy properly and do not default during the grace period.
What is a Grace Period in Gap Insurance?
A grace period in gap insurance is the period an insurer gives in a policy that allows the insured to pay after missing their payment due dates. The grace period afforded under Texas law is at most 31 days. The insured has to pay because failure to pay means a lapse in the coverage. If your coverage lapses after the grace period, you will need to reinstate it if allowed by the insurer or purchase a new policy which may cause your rate to go higher even when you switch insurance companies.
In case of a lapse: Once the lender finds out that the financed vehicle is not insured up to the standards outlined in the loan documentation, they will buy gap insurance and any other required auto coverage through their own insurance channels and will then bill you for it. Such “stand-in” coverage is usually much more expensive than regular insurance.
Is There a Grace Period for Gap Insurance after Termination?
No, you do not have a grace period in your gap insurance coverage after the insurer has terminated your policy. Generally, a grace period is what an insurer includes in your policy that allows you to pay after you default on payment. If you fail to pay during the grace period, your policy will be terminated, ending the policy.
What to Do if you Can’t Pay for Gap Insurance?
When you know you cannot afford to pay for your gap insurance coverage, you should notify your insurer within a reasonable time. It would be best also to inform your agent to help you reach another deal with the insurance company. If they are unable to drop your rates and you know that you cannot make the payment on time, then you should discuss your situation with the financing bank, so they are not surprised by the loss of coverage when it occurs. The bank may offer you financing options and purchasing insurance coverage though their sources, so the premium would be included in the loan. Alternatively, you can take the following steps if you still want gap insurance coverage:
Shop for more affordable comprehensive and collision insurance rates. Also, shop for discounts that can help you drop some of your premiums.
Lower your comprehensive and collision coverage limit by raising your deductible amount.
When you are caught up in this type of situation, it is advisable to speak to a Texas-licensed insurance agent who can help you shop around for other policies that will suit your insurance needs at that time.
Will my Gap Insurance Lapse if I Miss a Payment?
Yes, but not immediately you miss a payment. Usually, when you miss a payment, the insurer will notify you to make payment during the grace period provided in your policy contract. However, if you fail to make payment during the grace period, your insurance company will terminate the gap insurance policy at the expiration of the grace period. Once the insurer terminates the policy, there will be a lapse in the coverage and the lender is informed of it. To avoid this, you can pay on time or buy a new policy if you cannot afford the existing carrier.
