Gap insurance does not pay when a car needs normal repairs, when a car is damaged but not declared a total loss, or when a driver does not make the necessary payments. Gap insurance only pays when a car is totaled and there is a difference between the lease or loan balance and the car’s value.
It’s also worth noting that certain insurers limit the amount a gap insurance policy will pay, often to 25% of the car’s value. Policies with a 25% cap are usually called “loan/lease coverage.”
Gap Insurance Won’t Pay For:
A car’s reduced value after an accident that does not total it
Normal repair needs
A rental car after an accident
A new car
The gap between the car’s value and the loan or lease balance after engine failure
Extended warranty coverage that was included in the original loan or lease balance
Money included in a loan or lease balance that was rolled over from a previously financed car
Injuries, lost wages, or damage to other people’s property from an accident
Car payments missed due to unemployment, injury, disability or death
In addition, many gap insurance providers will not pay your collision or comprehensive deductible, though it depends on the specifics of your policy.
Gap insurance takes 5-45 days to pay the policyholder after a claim is filed. For drivers to receive a gap insurance payout, the car first needs to be declared a total loss, and the insurance company needs to accept the claim.
State laws also dictate how long an insurance company has to pay for a claim. For example, insurers in Texas must pay within five days after accepting a claim. Some other states, like Massachusetts, do not have a specific limit, saying only that an insurer must pay within a “reasonable” amount of time.… read full answer
Factors That Affect How Long it Takes for Gap Insurance to Pay
Insurance companies will generally declare a car a total loss within 30 days of the initial claim being filed. However, more complicated situations take longer to settle, such as:
Accidents involving multiple drivers
Unclear fault determination
Once the car has been officially established as a total loss and the insurer agrees to pay for gap coverage, the company will begin to process the gap payment. Since gap insurance pays for the difference between a car’s actual cash value (ACV) and the balance on its loan or lease, gap insurance payments are usually sent straight to the lessor or lender.
How To Speed Up Gap Insurance Payout
To get the fastest possible gap insurance payout, be sure to check your policy details and follow any instructions from your insurance company. For example, some insurers require you to keep making payments to your lender or lessor while the claim is being investigated.
Also make sure to send the insurance company any necessary documents, like a copy of the police report, and promptly sign and return all paperwork. And if needed, check your state’s laws to see if there’s a specific window during which your gap insurer is required to pay.
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 insurance. A claim must be filed and verified before a gap insurance provider will make a payment.
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.
Getting Gap Insurance
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.
Yes, gap insurance can help you get a new car. Although it does not outright pay for a new car, gap insurance pays for the difference between the current value of your car and your remaining lease or loan balance when your car is totaled. Because most insurance companies impose limits to gap coverage, it can only be used together with … read full answerliability, collision, and comprehensive coverage to cover the full cost of a totaled vehicle.
Without gap insurance, you'll still have to pay off the difference between the actual cash value of the car and your loan amount. Having gap insurance added to your existing car insurance will help you cover your totaled car loan so you can focus on getting another loan or lease for a new car.
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