Gap insurance refers to a type of automobile insurance intended to cover the “gap” between the amount of money the car’s owner owes on their car loan, and the market value of that car. An example of this would be if a person has a car loan for $20,000. The car they purchased with the loan is totaled in an accident, at which time it was worth $18,000. Collision insurance would cover that $18,000 while gap insurance would cover the remaining $2,000 owed on the original loan.
What Does Gap Insurance Cover? What Does it Not Cover?
Gap insurance is also sometimes referred to as loan or lease gap coverage. Such coverage is only available if you are the original loan or lease holder for the vehicle. While some types of auto insurance are required to own or purchase a vehicle, gap insurance is not generally included. It is optional but beneficial. You may decide to purchase gap insurance for your new vehicle if:
- You made a down payment of less than twenty percent;
- The vehicle has been financed for sixty months, or longer;
- You are leasing the vehicle, as carrying gap insurance is generally required for a leasing agreement;
- You have purchased a vehicle that depreciates more quickly than average; and/or
- You have rolled over negative equity from an old auto loan into your new one.
Gap insurance may also help cover your losses if your vehicle has been stolen. Again, gap insurance alone would not be sufficient to cover your losses in the event of an accident or theft. However, paired with other types of auto insurance, it can help minimize your losses. Some examples of what gap insurance does not cover include:
- Repairs to the damaged or totaled vehicle;
- The value of the vehicle, or balance of the loan, if the vehicle is repossessed;
- A rental vehicle while your own vehicle is being repaired;
- The diminished value of your vehicle post accident;
- A downpayment for a replacement vehicle; and
- Extended warranties added to your car loan.
What Are Some Common Gap Insurance Disputes?
While gap insurance can be helpful, it is also associated with a large number of legal issues, disputes, and concerns. The biggest issue with gap insurance is that certain types of gap insurance are not subject to official regulation. Gap waiver types would be the most common example of this. This results in car dealers being able to sell gap products to consumers without much accountability, even though they are not licensed insurance agents. In fact, it is commonly less expensive to purchase a gap insurance policy through a licensed insurance agent than it is to purchase through an auto dealer.
Additionally, there is no outside party or entity responsible for ensuring that gap waiver products are being sold at reasonable prices, or to consumers who really need them. An example of this would be how there have been some reports of car dealers obtaining gap insurance from a provider at around $50-$100. They then resell the product to car customers at $300-$500. Car buyers might feel pressured to buy such products due to the fact that it seems easier to finish all of the paperwork at once, right at the dealership.
Other common gap insurance disputes include:
- Gap Insurance Fraud: This is a form of insurance fraud. Gap insurance fraud could include things such as not disclosing all of the insurance terms, withholding information, and/or presenting fraudulent loan information;
- Valuation Disputes: These are disputes over the valuation of the car, such as stating that a car is worth $18,000, when in reality it’s actually worth $20,000. As such, if the gap insurance pays out $18,000, the person might still owe $2,000;
- Vague Language: This could include language appearing in fine print, language embedded at the back of the contract, and/or vague terms intentionally meant to confuse the average consumer into agreeing to something they ordinarily would not agree to; and
- Insufficient Instruction: An example of this would be if no instructions were given regarding how to file a claim or contest the gap policy. This is, again, because car dealers are not licensed insurers.
Gap insurance does not cover death, or car payments in cases involving financial hardship or job loss. This may be the cause of dispute later on, so it is important to speak with an insurance agent or an attorney in order to determine exactly what gap insurance will not cover.
What Are Remedies for Gap Insurance Conflicts?
As with most types of insurance conflicts, gap insurance conflicts generally require legal action to resolve. Some cases involve serious violations of law, and/or breaches of contract that require a lawsuit. Additionally, in some states, any person who assists an unlicensed person in selling insurance products could also be held liable for losses caused by the unauthorized sale of the insurance product.
A gap insurance lawsuit can provide some sort of damages award intended to reimburse the non-breaching party for losses. This award provides compensation for a conflict. The liable party could also be responsible for attorney’s fees and court costs, depending on the specifics of the situation. There have been many instances in which gap insurance disputes have resulted in class action lawsuits due to the fact that many people were affected by one issue.
Do I Need a Lawyer to Help Me Resolve a Gap Insurance Dispute?
If you are involved in a gap insurance dispute, you should consult with a skilled and knowledgeable personal injury lawyer. An experienced personal injury attorney can help you resolve the dispute by reviewing your gap insurance policy and determine whether there are any legal actions available to you. Finally, an attorney can also represent you in court as needed.