After a car is totaled, gap insurance covers the balance between what is owed on a driver’s loan or lease contract and what is paid to the lender by their collision or comprehensive insurance policy, or another driver’s liability insurance. A claim must be filed and verified before a gap insurance provider will make a payment.
How Gap Insurance Works After a Car Is Totaled
- The policyholder files a claim with their gap insurance provider as soon as the car is declared totaled by their primary insurance provider.
- The gap insurance provider will verify the car has been totaled due to a covered cause.
- The driver’s primary insurer pays for the actual cash value of the vehicle, minus any applicable deductible.
- The gap insurance provider pays the difference between the primary insurance payout and what’s still owed on the loan/lease contract.
An insurance company will “total” a car when the damage to the vehicle is so severe that the cost to repair it exceeds a certain percentage of the car’s actual cash value (ACV), depending on the insurance company’s policies and state law.
If you think you might need gap insurance coverage, contact your primary insurance provider, and possibly your lender, to see if gap insurance makes sense for your personal situation. Some gap insurance providers only sell policies to original loan/lease holders within a short period of time after the contract is signed, but others will sell a driver gap insurance as long as there is a need, no matter the age/condition of the vehicle.
Finally, it’s important to note that gap insurance is different from loan/lease payoff plans, which customers can purchase at any time if they have an active contract on their car. While gap insurance will pay the entire difference between a financed vehicle’s ACV and the contract’s balance, and often any deductibles, loan/lease payoff plans only pay a maximum percentage of a car’s ACV and don’t generally cover deductibles.
WalletHub Answers is a free service that helps consumers access financial information. Information on WalletHub Answers is provided “as is” and should not be considered financial, legal or investment advice. WalletHub is not a financial advisor, law firm, “lawyer referral service,” or a substitute for a financial advisor, attorney, or law firm. You may want to hire a professional before making any decision. WalletHub does not endorse any particular contributors and cannot guarantee the quality or reliability of any information posted. The helpfulness of a financial advisor's answer is not indicative of future advisor performance.
WalletHub members have a wealth of knowledge to share, and we encourage everyone to do so while respecting our content guidelines
. Please keep in mind that editorial and user-generated content on this page is not reviewed or otherwise endorsed by any financial institution. In addition, it is not a financial institution’s responsibility to ensure all posts and questions are answered.