How do I understand what my gap insurance covered?

I don't understand what my gap insurance paid for. I owed $10,000 on my car. My insurance valued my car at $8,000. There was a refund of $1,000 for an extended warranty. The gap insurance paid $1,000 to cover my loan. Is this amount right? Shouldn't it pay more?

Answer provided by
Emily Maracle
Answered on May 03, 2021
Emily Maracle is a car insurance specialist living in New York. Originally from the Pacific Northwest, she has a degree in English Literature and a background in customer service. She enjoys cooking, gardening, and living sustainably. In the future, she can't wait to upgrade to a hybrid or electric car.
“Your gap insurance will normally cover the difference if you owe more on your loan than what your vehicle is worth.
Since the difference was $2,000, your gap insurance would normally pay the full amount. However, since you received a refund of $1,000 for an extended warranty, that amount went directly to your lender.
Normally, extended warranties and other loan services are rolled into your monthly payments. Since you received a refund for the unused balance, it was applied directly to your loan.
This reduced your loan balance by $1,000, which made your remaining balance $1,000. This is why your gap insurance only paid $1,000, as this zeroed out your loan.

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