How Insurance Companies Handle Total Loss Gap Coverage

When a vehicle is declared a total loss due to an accident, theft or other covered incidents, the financial implications can be daunting, especially if the car’s value is less than the remaining loan or lease balance. This is where gap insurance comes into play, offering crucial support to bridge the financial gap.

Understanding Gap Insurance

Gap insurance, often referred to as loan/lease coverage, aims to close the gap between the actual cash value (ACV) of a totaled vehicle and the remaining balance on the car loan or lease. This insurance is especially advantageous for drivers who owe more on their vehicle than its current market worth.

Claims Process

When a total loss occurs, the primary auto insurer first determines the ACV of the vehicle based on factors such as depreciation, mileage, condition and market trends. After establishing the ACV, the insurer subtracts any applicable deductibles before issuing the settlement. If the settlement amount is less than the remaining loan or lease balance, gap insurance can step in to cover the shortfall.

To file a gap insurance claim, policyholders must notify both their primary auto insurer and gap provider immediately after the vehicle is declared a total loss. Claims typically need to be submitted within a specified timeframe, often between 30 to 90 days. The gap insurer then reviews the primary insurer’s payout, verifies the outstanding balance with the lender, and determines the coverage amount.

Coverage Limitations

Gap insurance policies have certain limitations. They only apply if the total loss is covered by the primary auto insurance. Additionally, gap insurance does not cover missed payments, late fees or negative equity from previous loans. Most policies also require continuous comprehensive and collision coverage; if these lapse, gap insurance may be voided.

Learn More

For gap insurance near you, contactSalvador Insurance Agency.

This blog is intended for informational and educational use only. It is not exhaustive and should not be construed as legal advice. Please contact your insurance professional for further information.