GAP insurance has become an option in recent years when you purchase a new car from the dealer. To the uninitiated, GAP insurance comes into play when you suffer a total loss to your vehicle while you’re still making payments on it.
The acronym GAP stands for Guaranteed Auto Protection.
Under normal circumstances in a loss with a customer who bought GAP protection, the insurance will pay the difference between the actual car value at the time of the incident and the principal of the loan amount.
- For a quick summary, on how this all works say you finance a new car for $15,000, and you made a $2000 down payment. Your car payments are around $300 a month with $225 of that going to the principal.
- Two years later you wind up in a wreck and totaled out the automobile. Your insurance claims adjuster deduces that your car is now worth $4600 at the time of the accident. You’ve made 24 payments on the principal of $225 for a total of $5400. Your original balance of $13,000 is now a balance of $7600.
Taking the insurance payoff amount of $4600 off of that price you’re now left with a difference of $3000. With a deductible, that number may be a little less. Normally you’re responsible for the remaining $3000. The GAP policy would pay this under these circumstances, so you could walk away from it unscathed.
In some cases, you may want a refund of the GAP policy for various reasons. It all depends on how you acquired the policy at the time of purchase. Some dealerships charge you the full amount of the GAP policy at the time of purchase. Other dealerships will tack on the GAP amount to your monthly car payments.
In the first scenario, all of your GAP money is accounted for. You would have to contact the dealership or the company that holds the policy for any unused premium amount that can be credited back to you. In the second scenario, you pay as you go so there wouldn’t be any refund available to you.