Your collision coverage would pay your lender up to the totaled car's depreciated value — say it's worth $19,000. If you don't have gap insurance, you would have to pay $1,000 out of your own pocket to settle your auto loan on the totaled car.
Gap insurance makes sense for people who put no money down and choose a long payoff period since they may owe more than the car's current value. You may be able to skip gap insurance if you made a down payment of at least 20% on the car when you bought it, or if you're paying off the car loan in less than five years.
These two separate coverages are typically required on your car insurance policy if you're leasing or financing your vehicle. If your car is paid off, they're optional. But, if your vehicle is totaled and you don't have comprehensive or collision coverage, you may have to pay out of pocket to buy a replacement vehicle.
If you get into a minor fender bender and you're within the eligibility time frame, you can probably still get gap insurance. However, you can't get gap insurance after an accident that totals your vehicle. At that point, you are stuck paying off your auto loan balance out-of-pocket.
You can typically add gap coverage to an existing car insurance policy or a new policy, as long as your loan or lease hasn't been paid off. Buying gap insurance from an insurance company may be less expensive, and you won't pay interest on your coverage.
If you don't have gap insurance to cover the difference between your total loss settlement and your loan balance, you can try to negotiate with the insurance company. An insurance company is required to pay fair market value for your car.
GAP insurance lasts as long as you need it to, with most drivers keeping their policies active for a year or two. As there's no further need for a GAP plan once the balance of a loan is less than the value of your vehicle, you can terminate your policy any time after you owe less than the car is worth.
When Does Gap Insurance Not Pay? GAP does not pay out if the insurance company deems your vehicle a total loss and you do not carry comprehensive and collision coverage. GAP does not include costs beyond the difference between your loan balance and the car's value.
GAP is supposed to cover the loss you would suffer if your loan balance is higher than the value of the vehicle. GAP is one of several optional add-on products – such as extended warranties or credit insurance – that a dealer will likely offer to you when purchasing or leasing a car.
For example, if your car's 10 years old, but it's still worth $10,000, it's probably worth paying a couple of hundred dollars a year for collision coverage. On the flip side, if it's seven years old and only worth $3,000, keeping collision may not make sense.
Gap insurance covers the difference between your car's actual cash value before the total loss and the amount you still owe on the loan at the time of the loss. That's it. If you're at fault for the accident (or whatever the reason for the loss), your deductible still applies.
You can negotiate the insurance settlement on a totaled car. You'll need to provide evidence that the car is worth more than the offer, such as documentation of the car's pre-loss condition and of any upgrades made the the car, like new wheels.
But if you've waited around and no one appears, the next best thing you can do is leave a note. Your note should include your name, address, phone number and email address. Avoid leaving specific insurance information but be sure that the owner of the car has a way to contact you directly.
If your vehicle is deemed a total loss and the insurance payout is not enough to cover your outstanding loan balance, gap insurance can help. Remember, gap insurance is only for total losses, though. It does not help with smaller repairs or routine maintenance.
A lapse in coverage may cause insurance companies to see you as a high-risk driver, even if you have a good driving record. It can also potentially impact your future car insurance premiums. It's best to keep continuous coverage to get the best insurance rate and make sure that you're protected in a car accident.
You'll get a refund for the nine months of the year that you didn't use your GAP insurance coverage. Nice! A quick note on refunds from loan payoffs: Once you show your GAP insurance provider your loan payoff notice, you'll receive a partial refund for the GAP coverage that you haven't used.
Once you owe less on your car loan than what the car is worth, you generally don't need gap insurance.
Lump Sum Payment: By paying off the gap insurance refund policy in advance, you are then entitled to a refund on the unused portion. Monthly Payments: If you pay your premiums monthly, you won't be able to get a refund on any past months. However, you may get a small refund if you cancel early in the month.
If the gap insurance company discovers there was any fraud or misrepresentation (you lied) on your application for coverage, your claim could be denied. The vehicle isn't a total loss. Only total loss claims are covered by a gap policy. The claim exceeds the policy limits.
Gap insurance is most often recommended for new cars, as they depreciate the quickest, but you can typically buy gap coverage for used cars too. Note that some insurers will only sell gap insurance on used cars if they're less than three years old.
A general waiting period of 3 months on all benefits. A 12 months condition specific for pre-existing conditions for which you received advice, treatment or diagnosis during the 12 months prior to the cover commencing. Please refer to our Policy Document for 2023 (Section H) for more information.
Since the cost of car insurance is relatively low, gap coverage is normally worth it, but this only holds true for when you have (or will soon have) an upside-down loan like in the following circumstances: Your initial down payment was low, so your initial loan amount was high.
How long should I keep my GAP insurance? The best time to cancel your GAP insurance is when your loan amount drops below your car's value. Keep in mind, though, that when GAP insurance is required by a lease or loan, there's usually a condition for cancellation.
When your loan amount is more than your vehicle is worth, gap insurance coverage pays the difference. For example, if you owe $25,000 on your loan and your car is only worth $20,000, your gap coverage covers the $5,000 gap, minus your deductible.