I need some help figuring out GAP coverage. I posted this elsewhere, but someone suggested I post here for more advice.
I bought a new car, and less than a year later, I was rear-ended. My insurance determined the car was totaled. After the insurance payout, which was based on the NADA value (I hope I’m explaining this correctly), the amount was applied to my loan. I still had a decent amount left to pay, so I filed a claim with GAP. However, it looks like GAP used their own NADA value and said I wouldn’t receive anything. Now I’m stuck with the remaining loan balance even though I had paid for GAP coverage.
Does anyone know what might have gone wrong? Should I consider removing GAP coverage on my other vehicles? It doesn’t seem worth it, and the dealerships selling it don’t seem to explain it well. Any advice would be appreciated.
GAP is supposed to cover the difference between your car’s value at the time of the accident and what you still owe on the loan.
Sometimes, the GAP insurer doesn’t agree with the regular insurer on what the car was worth before the accident, and they’re not required to. It sounds like your GAP insurer thinks your car insurer didn’t pay enough.
From what I know, Rhode Island is the only state where insurers must use NADA straight away. But if NADA is being used, you should be able to check who’s right by comparing the price for the month of your accident. NADA’s free site usually shows a 6-month rolling average, but you need the price for the specific month when the accident happened.
To avoid this issue, it’s better to buy GAP insurance from your regular insurer instead of the dealer. When both coverages come from the same company, they can’t blame “the other insurer” for any disagreements. Also, once your car is worth more than the loan balance, it’s easier to drop GAP insurance with your insurer than to go back and change anything from the dealership agreement.
Situations like this are exactly why people often get frustrated with insurance companies. It creates a real feeling that they’re out to take your money. OP paid for GAP coverage, but when it came time to use it, they got denied. It’s easy to see why people feel like they’re being ripped off.
The difference was about $4,000. The loan was around $47,000, and insurance paid out roughly $43,000. I submitted the rest to GAP, but they used a higher NADA value than what the insurance company did, and then told me I wasn’t getting a payment. That’s a general idea of what happened—those numbers aren’t exact, but it’s what I was told by GAP.
Unless GAP didn’t explain it well, I’m trying to understand what went wrong. The car was a 2022 Dodge Challenger Hemi. I’m a scientist, and I can run tests all day, but I’ll admit I know nothing about insurance. I’m kicking myself for not learning more about it sooner.
There must be something specific in the GAP policy that explains why they aren’t paying. They should send you a denial letter that points to the exact policy language. If you don’t get a formal denial letter, I’d suggest filing a complaint with your state’s department of insurance. They can’t force the insurer to pay, but they can make the insurer explain the denial if the letter isn’t clear enough.
While I’ve never handled GAP claims, I assume that if both the regular policy and the GAP coverage are with the same insurer, this problem wouldn’t happen. However, I know disputes can arise when the two policies are from different companies, especially if they don’t agree on whether the initial payout was enough.
Here’s what the letter said. I’m sharing more than I usually would, but since it’s just numbers, I think it’s fine.
"The benefit request has resulted in a No GAP, meaning after processing the benefit request per the terms and conditions of the addendum, the payable loss has resulted in a zero or negative amount.
Please see the following Explanation of Benefits for calculation details:
Net Payoff at time of Loss: $47,157.93
Less NADA at time of Loss: $(-) 44,825.00
Less Service Contract Refund (Dealer Refund): $(-) 2,625.31
Less Amount in Excess of 120% MSRP/NADA Limit: $(-) 407.49
GAP Benefit Calculation: $(-702.87)"
The NADA value my insurance used was lower than the one listed here. Now I owe around $4,000+ on the loan because my insurance didn’t pay out the $44,825 mentioned. I’m waiting for the GAP process to be finalized, and I assume I can use whatever comes from that and the service contract refund, but it still won’t cover everything. I also have to make another car payment this month until the payout comes, and then I’ll be stuck paying off whatever’s left. I believe the $407.49 was negative equity, and I expected to be responsible for that. But the difference in the NADA amounts confused me. I thought the GAP coverage would take care of most of this, except maybe that $407.49. Now I have two car payments to deal with since I already bought a new car. At least I have the service contract refund, but it won’t clear the whole balance.
Did you get the refund of the extended warranty that they are referencing here?
I believe they are saying that gap coverage doesn’t cover the extended warranty you bought that you’re entitled to a refund from. There should be some fine print in your loan agreement about how to get this $2,625 back.
I should get the service contract refund, and it will help, but it’s still not clear or negative like the letter says. The payout from the insurance was based on a lower NADA value than what GAP is using, which is causing the issue. It’s not matching up with what’s really happening with the loan and insurance payout. Even after the refund, I’ll still have a balance. The numbers just don’t add up, and that’s the real problem. This whole thing is confusing, but I guess it’s a lesson learned.
That was really helpful! I’m trying to figure out if I should keep GAP on my current cars. I’ll need to pay off the rest of that loan, but it is what it is. This whole thing has really changed how I feel about GAP. I might check with my insurance company, since I think they offer GAP, and they’re a well-known company. I’m also considering new car replacement to see if that’s a better choice.
Some GAP policies will actually place a % limit on the LTV. So if your car depreciates really fast or if you rolled a lot of negative equity you might be capped.
