Gap Insurance

GAP coverage pays the difference, if any, between the outstanding loan or lease amount and the actual cash value of a financed vehicle triggered in the event of a total loss. GAP coverage is provided for the term of the underlying loan. It also provides for the reimbursement of the deductible up to $1,000 associated with the physical damage policy covering the totaled vehicle.

For Example:

Customer purchases a vehicle for $10,000. $2,000 is paid as a down payment and $8,000 is financed for a term of 36 months with a 20% interest rate. After 12 months, the customer is involved in an accident which results in a total loss. The customer’s primary insurance carrier evaluates the vehicle at the time of the loss and concludes the following:

Current vehicle value (ACV)               $9,000
Minus insurance deductible                 $1,000
Equals insurance settlement        $8,000

However, the loan payoff in this situation would be $9,216. The customer would still be responsible to the finance company for an amount of $1,216. Moreover, the customer would not have a car to drive!

GAP pays for the difference of $1,216 to satisfy the customer’s obligations to the finance company. However, in cases where the customer has no primary insurance on the vehicle, GAP would only cover the deficiency of $216. The customer would be responsible for the $9,000, which is the $8,000 for the underlying claim and $1,000 for the deductible. GAP provides recourse for the finance company to submit a GAP insurance claim on behalf of the insured customer. Typically, the customer is offered a waiver of liability at the dealership. That signed document along with the insurance premium is submitted for all applicants who are eligible for the program.