How Does GAP Insurance Pay Out a Claim?
Understand how GAP insurance claims work, from filing to final payout. Learn the process, calculations, and what to expect for financial protection.
Guaranteed Asset Protection (GAP) insurance provides a financial safety net for vehicle owners. It covers the financial exposure that arises if a financed or leased vehicle is declared a total loss. This specialized coverage helps protect consumers from owing money on a car they no longer possess.
What GAP Insurance Covers
GAP insurance covers the difference between a vehicle’s actual cash value (ACV) and the outstanding balance of a car loan or lease. When a vehicle is a total loss, such as from severe accident damage or theft, a standard auto insurance policy pays out the vehicle’s ACV, which accounts for depreciation. Since new cars depreciate rapidly, this ACV payout might be less than the remaining loan or lease balance. GAP insurance bridges this financial gap by covering the remaining deficiency, preventing the owner from paying out-of-pocket for a vehicle they no longer own.
Steps to File a GAP Insurance Claim
To file a GAP insurance claim, first contact your primary auto insurer after a total loss event. They will process your comprehensive or collision claim to determine the vehicle’s actual cash value and initial payout.
Gather necessary documentation concurrently. This includes the police report (if applicable), the primary insurance settlement offer, and proof of their payout. You will also need your vehicle’s loan or lease agreement, a complete loan history, and a current payoff statement from your lender.
Once the primary claim is underway and documents are gathered, notify your GAP insurance provider or the lender if coverage was purchased through them. Provide them with the primary insurer’s settlement and your loan details to assess the remaining financial gap.
How GAP Insurance Payouts are Calculated and Disbursed
After the primary insurer processes their claim and determines the ACV payout, the GAP insurer assesses the claim. The GAP insurer calculates the payout by subtracting the primary insurance settlement from your outstanding loan or lease balance at the time of loss. The difference is the amount GAP insurance covers, subject to policy limits.
Exclusions can affect the final payout. GAP insurance does not cover missed or late loan payments, negative equity rolled over from a previous loan, extended warranties, or other ancillary products financed with the vehicle. It also excludes the primary insurance deductible, damage from prior accidents, or losses due to illegal activities.
The GAP insurance payout is sent directly to the lender to satisfy the remaining loan or lease balance. If a surplus remains after the loan is satisfied, that amount is disbursed to the policyholder.
The GAP insurer verifies loan details with the lender and processes payment once information is confirmed. While timelines vary, a GAP insurance payout typically takes several weeks to process, often within 30 to 45 days after all required documentation is submitted and the primary claim is settled.