Does GAP Insurance Send You a Check?

Guaranteed Asset Protection (GAP) insurance is an optional coverage designed to provide financial protection when a financed or leased vehicle is declared a total loss. This coverage helps address situations where a vehicle’s actual cash value (ACV) is less than the outstanding loan balance. Since vehicles typically depreciate rapidly, a gap can form between the car’s market value and the amount owed. GAP insurance covers this financial difference, preventing the owner from remaining responsible for a loan on a vehicle they no longer possess.

Understanding the GAP Insurance Payout

The purpose of GAP insurance is to cover the financial “gap” between a vehicle’s actual cash value (ACV), as determined by the primary auto insurer, and the remaining balance on the car loan or lease. When a vehicle is totaled or stolen, the primary comprehensive or collision insurance policy pays out only the vehicle’s depreciated market value. If this payout is less than the amount owed, the policyholder would be responsible for the difference.

The payout from a GAP insurance policy is generally sent directly to the lender or financing company. This ensures the outstanding loan balance is satisfied, relieving the policyholder of the financial obligation for a vehicle no longer usable. For instance, if a vehicle is worth $20,000 but has a $25,000 loan balance, the primary insurer pays the $20,000 ACV to the lender, and the GAP insurer covers the remaining $5,000. This brings the loan balance to zero, preventing the borrower from being “upside down” on their loan.

The Claim and Payout Process

The process for a GAP insurance claim begins after a vehicle has been declared a total loss by the primary auto insurer. The primary auto insurance provider assesses the vehicle’s actual cash value and issues a settlement. This initial settlement from the primary insurer is typically paid directly to the lienholder or lessor.

Following the primary insurance settlement, the policyholder must file a separate claim with their GAP insurance provider. Required documentation for a GAP claim includes:
Primary insurance settlement statement and check copy
Original loan or lease contract
Complete loan history showing the outstanding balance
Police report (if applicable)
Vehicle’s sales agreement or buyer’s order
Proof of any loan payments

Once the GAP claim is approved and all necessary documentation is verified, the GAP insurer calculates the remaining deficiency. The funds are then sent directly to the lender to cover the difference between the primary insurance payout and the outstanding loan balance, fully satisfying the loan and concluding the financial obligation related to the totaled or stolen vehicle. The processing time for a GAP claim can vary, often taking several weeks, and it is important for policyholders to continue making loan payments during this period to avoid negative credit reporting.

Receiving Any Surplus Funds

While GAP insurance primarily pays the lender, a policyholder might receive a check in specific instances. This occurs if, after combined payouts from primary and GAP insurance, a surplus remains beyond the outstanding loan balance. This can arise if the initial actual cash value payout from the primary insurer was higher than anticipated, or if there are refunds for unearned interest or other cancellable products included in the loan.

If total funds from both insurance policies exceed the final payoff amount, the excess funds are disbursed to the policyholder. A pro-rata refund for unused GAP premiums may also be issued directly to the policyholder if the loan is paid off early, or the vehicle is sold or traded in, and the policy was paid for in advance.