If your insurance company decides your vehicle or motorhome is totaled (also called a "total loss") after an accident, your collision coverage:
- Will only pay you the actual cash value
- Won't cover money you still owe on your loan
Example: How gap coverage works
- Loan on a new vehicle: $30,000
- Actual cash value at time of accident: $25,000
- Money you get without gap coverage: $25,000 (minus your deductible)
- Loan amount you still owe: $5,000
- Money you get with gap coverage: $25,000 + $5,000
- Loan amount you owe: $0
What gap insurance doesn't cover
It doesn't cover interest the lender charges you, late fees or missed loan payments. It also doesn't cover extended warranties you add to your auto loan.
Make sure you know what you're buying
Dealerships and/or lenders may try to sell you what they call gap insurance, but it's not actual insurance. Instead, it's often a debt waiver agreement they advertise as gap insurance. However, there are important differences between these two products.
Debt waiver agreements that dealerships sell are often overpriced. You also can't cancel or return them if you pay off your loan quickly. Gap insurance, however, usually only raises your premium slightly, and you can cancel it if you pay off your loan.
It's a good idea to ask your insurer about gap insurance options before shopping for a new vehicle or motorhome. That way, you can compare their insurance to what the dealership offers. Your insurance company may never mention gap insurance or offer it to you, but they must sell it to you if you ask.
If you have questions, before you buy, give us a call at 800-562-6900.
Don't have gap insurance and your vehicle is totaled? Here's something else to consider
If you didn't get gap insurance and your car has been totaled, ask your lender about moving your loan to your replacement vehicle. This is called a collateral exchange. After your insurance payment goes toward the totaled car's loan, the lender adds the amount you receive for the totaled car to your replacement vehicle loan.