Can gap insurance deny a claim?
Gap insurance companies can deny a claim for a variety of reasons. The most common reasons are a loss that isn’t covered by the policy or that the policy has lapsed.
Gap insurance covers only in one situation: After an accident, your car is a total loss and you owe more than it’s worth.
You can’t file a claim for any damage that isn’t a total loss, or for any other damages that result from an accident.
Why would gap insurance not pay?
There are a few reasons your gap insurance policy won't pay:
- The policy lapsed for nonpayment before the date of the total loss
- Fraud or misrepresentation
- The claim isn’t covered by the policy
If the policyholder is in violation of the terms of their car loan or lease agreement, such as failing to make payments or not having the proper coverage, the gap insurance policy may not pay out. Additionally, gap insurance policies typically have a waiting period before coverage begins, during which the policyholder would not be covered for a total loss." Andrew Lokenauth, adjunct professor at the University of San Francisco, says.
Does gap insurance have a claim limit?
You’ll have to check your policy to find out if there is a claim limit and if so, how much it is. Some policies do put a limit on the percentage of the vehicle’s value they will pay out after a total loss.
If you’re very upside down on your car, meaning you owe a lot more than it’s worth, you may not be covered in full by gap insurance. In most cases, however, the gap insurance claim limit should be enough to cover the negative equity on your loan.
"Gap insurance does not finance the amount that is over the limit given by the policy. Gap insurance usually does not compensate deductibles." Wang says.
How to file a gap insurance claim
To file a gap insurance claim, contact your insurance company as soon as you know your car is a total loss and a settlement has been determined. The company will let you know what you'll need to provide for your claim to be processed.
The insurance company will send you a check, minus your deductible, for the car's actual cash value. The difference between that amount and what you owe is the amount you can request on your gap insurance claim.
Some gap insurance policies cover your deductible, while others only pay the difference between what you owe and the car’s value. Remember to read the fine print; you might still be out of pocket for the deductible amount, even with gap insurance.
Here’s an example. You owe $20,000 on your car loan. Your car is totaled, and the insurance company values it at $15,000. The difference, in this case, is $5,000. That’s the amount the gap insurance company will pay.
If you have a $500 deductible, you will get a $14,500 check from the car insurance company and a $5,000 check from the gap insurance company. Unless the gap policy includes deductible reimbursement, $500 is your responsibility.
"If the policyholder's claim is denied, they can appeal the denial by providing additional documentation and evidence to support their claim. It is also important to review the terms and conditions of the policy and ensure that the policyholder did not violate any of the terms and conditions." Lokenauth says.
Frequently asked questions
Does gap insurance always pay out?
No. There are several reasons gap insurance won't pay out, including that the policy has lapsed or that the claim is not a total loss.
Will gap insurance cover a totaled car without insurance?
No. You must have car insurance to buy gap insurance, therefore it's not possible for a gap insurance policy to pay anything if you don't have insurance on the car. Car insurance companies require that you carry full coverage before they will sell you gap insurance.
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