10 Reasons Gap Insurance Might Not Pay

Gap insurance may not pay if your vehicle was a partial loss, your policy is lapsed, or you were driving under the influence.
Written by Amy Bobinger
Edited by Maria Cruz
New cars depreciate a lot in value in the first year, meaning it’s common to owe more than your vehicle is worth if you lease or finance a newer vehicle. If you total your car while you owe more than it’s worth, you could be stuck making car payments on a vehicle you can’t drive anymore.
That’s where gap insurance—or guaranteed asset protection—comes in. If your vehicle is stolen or damaged beyond repair, gap insurance pays the difference between what your car is worth (the actual cash value, or ACV) and what you owe on your vehicle loan or lease. You can purchase gap insurance from your car insurance company, or you may be able to buy it from the dealership or finance company directly.
But gap insurance won’t apply in all situations. Here’s what gap insurance doesn’t cover:

1. Gap insurance doesn’t pay for partial damages

Gap insurance only applies in situations where your car is declared a total loss. If your vehicle can be restored to a drivable condition again, it’s not a total loss, so you won’t be able to file a claim with your gap insurance. 
Your damages still may be covered by insurance, though. Depending on what caused the damage to your car, you may be able to file a comprehensive or collision claim with your car insurance company. 
In order to purchase gap insurance, you typically must also carry full coverage.1 Full coverage insurance is made up of comprehensive coverage and collision coverage, and together, these will help pay for vehicle repairs due to car accidents, falling objects, theft, vandalism, severe weather, and more. 
Need to know: You may be required to carry full coverage and gap insurance as part of your loan or lease agreement.

2. Gap insurance won’t pay more than what you owe on the vehicle

The amount of money you would receive from a gap payout will decrease every time you pay on your car loan or lease, because the balance you owe is dropping. The payout amount will also fluctuate based on the value of your vehicle. 
This means that the amount you’ll be paid from a gap settlement is variable—it will be calculated at the time of the claim, and your gap payment plus the payout for your vehicle’s total loss can not exceed more than your loan amount.
Need to know: When the insurance company is evaluating your loan amount for a gap payment, they will exclude any negative equity that you rolled over from a previous loan, as well as any vehicle service contracts or extended warranties that you included in your loan.2

3. Gap insurance doesn’t pay for vehicle repairs

Gap isn’t intended to cover accident-related injuries or repairs, damage to someone else’s vehicle, or lost wages because of an accident.3 It also will not pay for the cost of a rental car while your car is being repaired, or for the cost of a new vehicle if yours is a total loss.
But that doesn’t mean you necessarily have to pay for these out of pocket. If another driver was at fault, their liability insurance should cover the damages. If you were at fault, your full coverage and liability insurance will cover most medical bills and vehicle repairs resulting from an accident.
Additionally, you can
customize your car insurance plan
to include coverages that will help take care of other expenses related to your claim.
Consider adding these optional coverages to your policy:
  • New car replacement
    : Covers the cost of replacing your vehicle with one of a similar value after yours is declared a total loss.

  • Rental reimbursement
    : Helps pay for the cost of a replacement car while your vehicle is in the shop for a covered claim.

4. Gap insurance doesn’t cover losses due to engine failure

Mechanical breakdowns like engine or transmission failure are not generally covered by a standard insurance policy. Neither are issues related to normal wear and tear or a failure to maintain the vehicle. 
Need to know: You may be able to have engine or transmission repairs covered by your car insurance policy if you purchase
mechanical breakdown insurance (MBI) or an extended warranty
, but these coverages won’t trigger a gap payout.

5. Gap insurance won’t cover regular car loan or lease payments

When you get your gap insurance settlement, it won’t cover finance charges, late fees, or outstanding payments—even if you missed those payments as a result of the accident that totaled your car. 
Also, if you’re on a lease with a mileage cap, gap insurance won’t cover any charges that result from going over that cap. It won’t pay any interest that has accrued on your loan, either.4 
If you do have additional charges on your loan or lease amount, those will be subtracted from the total before your gap payment is calculated.
To avoid still owing a balance on your loan or lease after a gap settlement, be sure to keep making your regularly-scheduled payments while you wait for your gap insurance claim to be settled. Otherwise, your lender or lessor may report the missed payment to a credit reporting agency, which could have a negative impact on your credit score.5

6. Gap insurance may not pay off your full loan balance

In most cases, a gap payment will be sufficient to cover the difference between your loan amount and the insurance company’s valuation of the vehicle. However, some insurers cap how much they’ll pay as part of a gap settlement. This cap is typically based on a percentage of the totaled vehicle’s value—usually around 25%. 6
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Example: Let’s say you take out a car loan for $30,000, with gap coverage that’s capped at 25% of the car’s ACV. After you’ve made 10 monthly payments of $250—a total of $2,500—you total the vehicle, and the insurance company gives the car a value of $20,000.  That leaves you with a remaining balance of $7,500, but because of the cap, your gap insurance will only pay $5,000. You would be left owing another $2,500 out of pocket. For the sake of this example, deductibles, finance charges, interest, and other fees have not been included.
Read over the details of your gap coverage carefully—if a total loss would still leave you owing a significant amount out of pocket, it may be a good idea to shop around for another gap provider.

7. Gap insurance won’t apply if your insurance is lapsed

In order to receive a gap settlement, your auto insurance policy must be active at the time the damage occurred to your vehicle. If your policy expires, or if it lapses due to non-payment, you won’t be able to collect for the damages at all—including under gap coverage.
Need to know: In addition to being uninsured if you get into an accident, letting your
insurance lapse
means you’ll pay much higher rates when you do buy a new policy.

8. Gap insurance doesn’t cover intentional loss

Insurance fraud is a serious crime, so if the insurance company suspects that you’re not being honest about the cause of your vehicle damage, your claim will be investigated and possibly denied. 
For instance, if an insurer discovers that a policyholder intentionally crashed their car or claimed their car was stolen when it wasn’t, the vehicle owner will not receive an insurance payout of any type. That person could also face additional consequences, including fines and jail time.

9. Gap insurance may not cover your deductible

When you make a claim under your collision or comprehensive insurance, you’ll be responsible for paying your
deductible
before the claim will be paid. Because gap insurance applies to collision or comprehensive claims, that deductible will apply.
Some gap policies will provide coverage for your comprehensive or collision deductible, but others won’t. Check your policy details to find out whether you’ll need to pay your deductible in the event of a total loss and subsequent gap settlement.

10. Certain driving conditions will void your gap coverage.

Gap insurance won’t pay under the following circumstances:
  • You damaged the vehicle while you were
    driving under the influence
    of drugs or alcohol.
  • You damaged the vehicle while you were using it for commercial purposes, like delivering food or driving for a ridesharing company. (You typically need a special
    rideshare policy
    that will cover commercial use.)
  • You allowed an
    excluded driver
    to operate the vehicle.
Remember to carefully follow all of the terms and conditions of your insurance agreement to ensure your claim will be covered in the event of a loss.

FAQ

Why would a gap claim be denied?

The most common reasons a gap claim would be denied would be that the vehicle was not a total loss, the damage isn’t covered by the owners’ policy, or the insurance policy wasn’t active at the time of the loss.

Why did my gap insurance not pay off my loan?

If you received a gap insurance settlement but it didn’t pay off your entire auto loan, your loan balance may include things rolled-over negative equity, late loan payments, finance charges, interest, or other fees that gap insurance doesn’t cover. You might have also reached the cap for your gap coverage—usually 25% of your vehicle’s ACV.

Does gap have a limit?

Some insurance companies do cap gap coverage. Typically if there’s a cap, it will amount to 25% of the car’s actual cash value (ACV)—which is calculated by subtracting the vehicle’s depreciation from its replacement cost.

What is the most gap insurance will pay?

The maximum amount that gap insurance will pay is the difference between your car’s ACV and the remainder of your loan. In some cases, your auto insurance company may cap that payment at 25% of the vehicle’s ACV.

How does gap insurance work?

If you owe more on your car than it’s worth and your car is stolen or totaled, gap insurance coverage will pay the difference between the actual cash value of your car and the amount remaining on your loan.

Does gap insurance cover theft?

If your vehicle is stolen and it is not recovered, you can file a comprehensive claim for the replacement cost of your car, and gap insurance will cover the difference between your total loss payout and the amount remaining on your loan.

Can I get a gap insurance refund after a total loss?

If you pre-paid the entire amount of your gap coverage (which frequently occurs if you buy your gap insurance through a dealership), you may be entitled to a refund if your car is declared a total loss and you don’t file a gap claim. For instance, if your collision or comprehensive settlement covers the remaining cost of your loan, you might request a gap refund from your insurance provider.

Can you buy gap insurance anytime?

If you owe more on your car than it’s worth, you may be eligible to purchase gap insurance. However, you may be subject to restrictions based on the age or mileage of your vehicle—gap insurance is sometimes restricted to cars that are newer than three years old and under a certain number of miles.

When can you skip gap insurance?

You don’t need a gap insurance policy if you finance a car for less than it’s worth—like if you trade in your old car or make a large down payment and you only finance the remaining balance. Also, gap insurance may not be available for cars that are more than three years old, so you probably don’t need it if you’re buying a used car.

What is the best car insurance company for gap insurance?

Most major insurance companies offer gap insurance—you can purchase gap coverage from the insurance carrier that provides your primary car insurance coverage for simplicity, or you may be able to purchase it directly from the car dealership or lease company where you purchased your vehicle, or the bank or credit union where you took out your loan.

How much does gap insurance cost?

Gap insurance can cost as little as $20 a year when you buy it from your auto insurance provider. If you purchase a standalone gap policy from your dealership, the entire cost of gap coverage will be added to your loan amount. This usually costs around $200–$400.

Meet our experts

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Amy Bobinger
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Licensed Insurance Agent — Expert Insurance Editor
Expert insurance writer and editor Amy Bobinger specializes in car repair, car maintenance, and car insurance. Amy is passionate about creating content that helps consumers navigate challenges related to car ownership and achieve financial success in areas relating to cars.
Amy has over 10 years of writing and editing experience. After several years as a freelance writer, Amy spent four years as an editing fellow at WikiHow, where she co-authored over 600 articles on topics including car maintenance and home ownership. Since joining Jerry’s editorial team in 2022, Amy has edited over 2,500 articles on car insurance, state driving laws, and car repair and maintenance.
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Maria Cruz
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Expert Insurance Writer & Editor
Maria is an insurance writer with over 10 years of experience as a professional writer. Prior to joining Jerry’s editorial team in 2023, she worked at various online publications like Nimble Media, Factinate.com, and served as editor-in-chief at The Medium. She holds a double major in English and Professional Writing and Communications.

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