Car Dealer's Gap Insurance

Gap insurance provides the policyholder with protection from paying the negative Equity that could occur if the vehicle was to become “totaled”. 

 

For example, a customer owes $20,000 on their car and they are in an accident. The insurance company claims the vehicle to be a total loss or “totaled”. However, when the insurance company pays the claim, they assess the vehicle replacement value to be only $15,000. This leaves the vehicle’s owner with a $5,000 balance they must pay to satisfy their loan.  Gap insurance would then pay that $5000 balance and satisfy the loan. 

 

This insurance could be valuable for customers who have transferred their Inequity from their trade-in. In other words, if they traded a vehicle in which they were “Upside-Down” and transferred that extra amount on to their new loan. Also, is states like California were this is a substantial sales tax; gap insurance would cover that extra balance. Of course, if a buyer makes a large down payment, their outstanding balance should be in-line with their car insurance’s coverage and gap insurance would not be necessary.

 

Gap insurance is available on leases as well as loans. In fact, many leases will automatically include gap coverage. In this case, it will be defined in the lease contact and not itemized as an insurance cost. If the “F&I” claims that gap insurance is included and then upon signing the contract it is listed as a premium, it is not included and can be removed at the customer request.