If the new vehicle is totaled or stolen, the dealership’s GAP policy pays the difference between cash value of the vehicle and the balance of the loan — including the negative equity on the trade-in.
But sometimes insurance companies don’t cover the negative equity on the trade-in in GAP coverage, Reahard says.
What gap insurance does not cover?
With a gap insurance policy that includes coverage for your deductible, this whole amount would be covered. If you didn’t get gap insurance, you’re left paying the difference out of your own pocket for a car you no longer have – and that hurts, because you’ve got to buy another car, too.
Do you get a refund on gap insurance?
You do not get your full GAP coverage refunded back to you once you pay off your car. When you pay your GAP insurance premium in advance, you are entitled to a refund of the unused portion if you pay off your vehicle early. You may receive a small refund if you cancel early in the month.
What happens when your car is totaled and you have gap insurance?
If your vehicle is totaled and you still owe more than it’s worth, your car insurance company will pay only actual cash value (ACV) for your vehicle. That is the fair market value of your vehicle the instant before it was damaged in the auto accident.
Photo in the article by “Best & Worst Ever Photo Blog”