When Does Gap Insurance Not Pay?
Gap insurance does not pay for car damages if your vehicle is not deemed a total loss or if you have not kept up on your payments.
Written by Jacqulyn Graber
Reviewed by Kathleen Flear
You won’t receive a payout from your
gap insurance
if your car just needs standard repairs and is not deemed a total loss or if you have not kept up on your payments.But what is gap insurance? Formally known as “guaranteed asset protection,” this special type of coverage covers the “gap” between what you owe on your
car loan
and the current cash value of your vehicle if your car is totaled or stolen. However, there are only certain circumstances in which your auto insurance company will issue a gap insurance payout. Gap insurance only pays when a car is totaled and there is a difference between the lease or loan balance and the car's depreciated value.
Read on for a more thorough explanation of this type of
car insurance
, and when you can—and cannot—expect it to give you a payout. Compare insurance quotes from 50+ carriers with Jerry in under 45 seconds (Title in payload)
4.7/5 rating on the App Store | Trusted by 5+ million customers and 7 million cars4.7/5 app rating | Trusted by 5M+ driversWhat gap insurance doesn’t cover
Let’s get right to it. Gap insurance won’t cover:
- Your vehicle’s reduced value if it is not deemed a complete loss after an accident
- Basic repairs to replacement parts
- A rental car
- A completely new vehicle
- Engine failure
- Extended warranty coverage that was included in the original loan or lease balance
- Money that was rolled over from a previous car loan with negative equity
- Injuries to others, or damage to their property
- Missed car loan payments as a result of unemployment, injury, disability, or death
It’s also very likely that you’ll still be responsible for paying your collision or comprehensive deductible—though certain gap insurance policies make an exception.
Instead, gap insurance covers your auto loan if your car is totaled or stolen and you owe more than the car's depreciated value.
Does gap insurance coverage have a claim limit?
Any claim limits on your gap insurance depend entirely on your insurance policy. Every car insurance company imposes its own set of rules.
Some policies do put a limit on the percentage of the vehicle’s value they will pay out after a total loss. Thus, if you’re very
upside down on your car
, (which means you owe a lot more on the loan than the vehicle’s Kelley Blue Book value
), gap insurance may not cover you in full. Fortunately, these circumstances are pretty rare.When is gap insurance worth it?
Adding gap insurance to your car insurance policy isn’t always necessary, but there are certain circumstances when it’s a good idea to buy gap insurance:
- If your financing agreement was for 60+ months
- If you leased your car (gap insurance is usually mandatory for leases)
- If the vehicle you chose is known to depreciate quickly
- If you rolled an outstanding balance from an old car loan to your new one
When is gap insurance not worth it?
Even if you’re still making loan payments on your new or used car, you may be able to skip gap insurance. Usually, gap insurance is optional if you’re financing a purchase (although it may not be optional if you’re leasing a vehicle).
Here are a few circumstances in which gap insurance may not be necessary:
- Your down payment was greater than 20%, which lowers your chances of entering an upside-down loan—even in the first year of ownership.
- Your loan term is less than 60 months (or five years).
- Your model has a slower depreciation rate than other vehicles on the market.
It’s a good idea to check
Kelley Blue Book
to get a better idea of your car’s actual cash value, as well as how the said value of the vehicle compares to your loan amount. You can also do some research to estimate the depreciation of your vehicle and see how the value of your vehicle may change in the near future.If your loan balance is less than the value of your car, then you no longer have a gap to worry about.
However, keep in mind that—until your loan is completely paid off—your lender may require you to hold
collision coverage
and/or comprehensive coverage
. Lessors typically require these types of coverages for leased vehicles, as well. How to buy gap insurance for your car insurance policy
When you purchase a new vehicle, the car dealership will most likely ask you if you want to purchase gap insurance when you discuss your financing options. They will also (most likely) require you to purchase it if you’re leasing a car from them.
This can be a convenient way to purchase gap insurance, but beware that it might be more expensive if it’s bundled into your loan’s monthly payment—especially since you’ll then be paying interest on your gap insurance.
Instead, you can easily add gap insurance to your existing car insurance policy or a new policy. If you already have insurance, simply call your insurance adjuster to determine how much it would be to add the coverage to your policy.
Otherwise, call around to collect
car insurance quotes
. Note that you’ll still need comprehensive and collision coverage, as well, to buy a gap insurance policy—and all of these will make your insurance rates a bit higher than if you were to simply opt for basic liability insurance.Are you overpaying for your car insurance?
Are you overpaying for your car insurance?
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Does gap insurance pay off your car loan?
Gap insurance is an optional car insurance coverage that helps pay off your auto loan if your car is totaled or stolen and you owe more than the car's depreciated value.
Does gap insurance cover damage to your car?
No—gap insurance won’t pay for damage that occurs to your vehicle during a collision. It only pays off your loan if your car is stolen or totaled. Collision coverage and comprehensive coverage work to pay off other damages and are typically required in order to purchase gap insurance.
