Swanson O’Dell explained the basics of GAP insurance here. GAP insurance can certainly be a useful thing, but, as with any financial product, there are dangers to check for when you purchase.

The Dealer Swallows the Premium

GAP insurance is most commonly purchased when you are buying a vehicle at a car dealership. As you are finalizing the details of your purchase contract, the finance manager of the dealership will talk to you about GAP insurance, service contracts, and maintenance contracts. A GAP contract should cost between $300 and $800, which will be rolled into your vehicle loan. The dealership takes a percentage of that money and pays the rest to the insurance company who will administer the GAP insurance.

Unscrupulous dealers realize something, though: The likelihood that you will use this GAP contract is very small. So, instead of just taking their percentage and forwarding the rest to the insurance company, dealerships will often just pocket the whole amount, taking the risk that you will never try to use the contract, and that, if you do, you will not dig into their malfeasance.

GAP Insurance with a Cap

Like any financial product or insurance contract, GAP can have a lot of fine print. As you’re sitting in the dealership, anxious to be done with paperwork and driving your new car, it can be very hard to make sure that you read all the details, but they are all important.

As Swanson O’Dell explained, the purpose of GAP insurance is to cover the difference between the valuation of your vehicle by your collision insurance and the balance that you owe on the financing. Depending on your car, the price you paid, and your interest rate, that balance can sometimes be quite large. GAP companies that are just trying to make a quick buck do not want to be responsible for large payouts, so they put a cap on their liability. Somewhere in the contract there will be a statement such as, “Coverage will not exceed 10% of the NADA blue book valuation of the insured vehicle.”

That may not sound like something terrible, but it means that this contract may well be almost completely useless to you. For example, if the insurance company values your car at $10,000 and you owe $15,000 (numbers which are very common), this GAP contract will only pay out $1,000, leaving you with a $4,000 bill that you thought they would cover.

The best way to avoid these scams is to make sure that you’re dealing with a solid, reputable dealer. Check Google and Yelp reviews before you go to a car lot. Remember that no matter how good the price may be, if you’re dealing with someone you can’t trust, it still isn’t a good deal.

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Comments (42)

  • Dennis E. Eads on October 7, 2016 at 9:43 AM

    I had a RAM 3500 that I paid for GAP insurance for. I had to buy it or TD Allen didnt want to loan me the money as I was top heavy. I agreed to the GAP policy . Well on 26 March 2015 my truck lost the front drive shaft and the insurance totaled it out as it had 27000 dollars in damage. The insurance paid out 19000 and change which left me a balance of approximately 27000 dollars. When I went to claim GAP they said I had no policy. The dealership never funded the GAP and I do have a piece of paper that says I have GAP. To my knowledge that dealership has been closed and the then owner prosecuted with immunity against any other claims. Now I have debt collectors ruining my credit. What can I do. I have been told I cant sue the guy so I sit here watching people take aim at me and all I can do is dodge the bullets. Reply

    • Kevin Faulk on October 7, 2016 at 12:21 PM

      Dennis, There are still possible solutions to this situation. Even if you can't go after the dealership, the finance company may be liable for the actions of the dealer. I'm going to email you. Get back in touch with me and we can figure out how to help you in this situation. Kevin Reply

  • Melinda on February 7, 2017 at 12:58 AM

    I paid $1095 for a service agreement on a used car purchased at a dealership. I decided to cancel the plan and today I received a letter from the company denying payment of a refund because my car was too old for the plan! It said to contact the dealer for a full refund which I will do today. So not only did the dealer sell me a useless service agreement but also it took me canceling the the service plan (purchased in October) before the insurance company notified me that I was not covered. How ridiculous is that. Reply

    • Kevin Faulk on February 7, 2017 at 3:30 PM

      Melinda, Wow! That is horrible. Before you contact the dealership, I would like to talk to you about the situation. There are some very good options open to you. Reply

  • Gregory sanders on July 15, 2017 at 11:09 AM

    We purchased a vehicle in November of 2016 and purchased gap through the dealership we signed the contract and received the Documents. In May of 2017 we totalled the vehicle and our primary insurance issued the checks and we contacted gap to give them information they would need to get the process going we waited a couple of week and had no response come to find out the dealership pocketed the money we gave and didn't file the papers. I have tried repeatedly to contact the manager who wrote up the contract but he is conveniently never available so i need advice Reply

    • Kevin Faulk on July 17, 2017 at 3:38 PM

      Gregory, I would love to help you with this. I've emailed you. Please call me as soon as possible so that I can help you. Reply

  • Michelle on October 24, 2017 at 7:12 PM

    Kevin, I had the same situation as Dennis but it gets worse. My insurance company paid off the vehicle except about $2,000. I had a 60 month contract and my vehicle was totaled 16 months in. I was never paid out for GAP insurance nor refunded for the difference. I never received a refund check for the vehicle protection plan nor for the theft devices. To top it off, all three credit reports show that I still owe a FULL balance for the vehicle thus ruining my credit and making it impossible for me to get another car. When I spoke with the finance company, I was told that my credit reports should only show the $2,000 and that the dealership went out of business. What should I do? Reply

    • Kevin Faulk on October 25, 2017 at 7:41 AM

      Michelle, It sounds like they failed to pay the GAP insurance at the very least. There are a lot more details I need to know though. I'll be emailing you to see how I can help. Kevin Reply

  • Christi Clark on October 27, 2017 at 9:00 PM

    I bought a car at Zeisser Kia in Wood River on April 1st 2016 and had no problem so I thought. I bought the Gap insurance and have the paper work showing I did. U car was totaled on Aug.13, 2017. After getting the call from the insurance as to what they would pay I call the Gap insurance. They stated they could not find any paper work for me but a supervisor started my file. They asked for my copy of the receipt I had so I faxed them one along with my breakdown of what everything cost. After 3 weeks, I called every week, they told me it was never paid for. I paid for it Zeisser did not and since I bought it they sold out to Federico Dodge. I am giving you my work email as I work 8-4:30 M-F Reply

    • Kevin Faulk on October 30, 2017 at 12:03 PM

      Christi, I've emailed you about this. This may be a path to getting much of your money back. Please contact me immediately. Kevin Reply

  • Eucebio Balderrama on November 15, 2017 at 9:01 AM

    I bought a 2017 Chevy trax the dealer added a gap contract in the Amount of $985.00 saying i needed so my pymnt came to $484.55. 3 weeks later i cancel the gap contract. 3 week later the finance company recived the gap contract money and told me that they would Apply it to the principal. But my pymnts did not change. Is that legal? Thank you in advance for your reply. Reply

    • Kevin Faulk on November 15, 2017 at 1:10 PM

      That is legal and it is what is supposed to happen in these situations. Reply

  • Anthony Mengarelli on November 16, 2017 at 7:14 AM

    Hi, I have a feeling my dealership in Florida where my wife purchased a 2014 Lincoln MKX committed fraud. They sold us GAP insurance. I went to cancel the insurance and the company that underwrote the policy said it was canceled the day we purchased it and a full refund was sent to dealership. Called the dealership and they said the finance company would have gotten the check and to check with them. They have not. The GAP company provided me with dates that shows refund went back to dealer. I feel I was taken advantage of. What can i do? Reply

    • Kevin Faulk on November 16, 2017 at 2:03 PM

      Anthony, I'm licensed to practice in California, not Florida, so I can't tell you exactly what your legal rights would be. It does sound like something wrongful occurred, though, and I would suggest that you go to nclc.org to find a Florida attorney to help you. Kevin Reply

  • Leslie Moses on November 27, 2017 at 11:59 AM

    Hi, I purchased a 2009 Subaru Forester in 2015 and purchased a gap policy with the car. The vehicle was totaled in June of this year. I had a little over $10,000 to pay on the existing loan and the vehicle was valued at a little over $8,000, which was what my car insurance provider had covered. I filed a gap claim but the gap company told me that they are not able to cover the remainder of the loan because I bought an over-financed vehicle and they cannot cover vehicles that are sold over-financed. I contacted the dealership I bought the car from to ask them how they could have sold me this gap policy knowing that I would never be able to use it because they were selling me an over-financed vehicle and their only reply was "we're a dealership, all of our vehicles are sold over-financed. If you have an issue with the gap you need to take it up with the gap company." This does not seem right to me and I am unable to get any answers from the dealership or the gap company. Do you have any suggestions? Thank you. Reply

    • Kevin Faulk on November 27, 2017 at 12:35 PM

      Leslie, I think I can help! I just emailed you. Reply

  • CLS on November 29, 2017 at 9:38 AM

    I purchased a pricey vehicle from Mercedes Benz. During the recent hurricane my vehicle was totaled. I had full coverage commercial insurance and Gap insurance which was sold to me by the dealership. My insurance has paid a portion and I was left with a balance of over $24000. Now Gap is claiming that they will not cover anything due to me using the vehicle for business. The dealership was the one that advised me to get the policy knowing it was a business vehicle. What can I do to have the dealership responsible for the balance? Reply

    • Kevin Faulk on November 29, 2017 at 9:47 AM

      Hi! I wish I could help you, but it sounds like you're in Texas, not California. I recommend that you go to NCLC.org and look for a Texas attorney to consult with. Reply

  • Tim Pedicini on December 27, 2017 at 12:56 PM

    I'm in MI and we have a local dealer here who has some questionable business practices. I work for a credit union and we recently had a member who totaled her car and the dealer "filed" the GAP claim. After waiting almost 2 months and contacting him every week, I finally called the GAP company and found out the dealer charged the member for the policy and did not purchase the contract. When we threatened him with legal action, he paid off the loan himself. I am sure that he has done this to many other customers, hoping they don't total their cars or bother to file the GAP claim. Who do you recommend I talk to about him cheating people out of their GAP contracts? Is this a question for our attorney or is there some state office that I should notify. Sorry for asking in this CA forum but it came up in a Google search and had some valuable info. Thanks for any help you have. Reply

    • Kevin Faulk on December 27, 2017 at 1:05 PM

      Tim, I would go to naca.org and look for an attorney who is local to you. Reply

  • Lori Harvey on February 27, 2018 at 3:55 PM

    Last year my Mother cosigned with my Niece to purchase a car. The contract included gap coverage. At the end of last year the car was totaled. When she contacted the insurance company about the gap she was told that it was not paid for. What can she do about this? Reply

    • Kevin Faulk on February 27, 2018 at 5:01 PM

      Lori, I think I can help you with this. I'll email you and wait for your reply. Reply

  • Evelyn on February 27, 2018 at 5:58 PM

    my car was deemed a total loss by my insurance and when i tried to make a gap insurance claim i realized i didn't have any information about the gap other than receipts and the contract where it states i got it for 36 months, when i went called the dealership for contact information she gave me 2 different phone numbers to call but neither one of them had the car in their system so i called back and she said "are you sure you have gap insurance, i'm sure we removed it when you weren't approved for the full loan amount" and i told her its on both of my contracts but shes so sure we removed it. unless they removed it without my consent i do not recall removing the gap insurance Reply

    • Kevin Faulk on February 28, 2018 at 4:57 PM

      Evelyn, I emailed you to see if I can help with this problem. Kevin Reply

  • Tonya on March 2, 2018 at 8:24 PM

    I just purchased my car in January 2018, and the loan includes a $900 GAP policy. I called the company last week and discovered that there is no policy. I have all of the signed documentation. I called the finance manager twice and he has failed to return the call. What recourse do I have? Reply

    • Kevin Faulk on March 3, 2018 at 2:42 PM

      Tonya, There are a few possibilities, depending on what you want to accomplish. I'll email you. Kevin Reply

  • Destiney McKissack on March 8, 2018 at 9:18 AM

    Hello, I feel like I’m a victim of these circumstances as well. Our car totaled after maybe 6 months. Our insurance company only paid half of the agreed 16,000 and then I had to call toyota myself to discover this. Finally I got GAP and Geico On the phone at the same time and insurance admitted someone didn’t do their job right and sent the other half immediately. Leaving 3,000 for GAP. However we were reaching the GAPs 20 Day remaining to close the GAP yet the insurance wasn’t my fault. They received the full amount from insurance regardless. Last time I spoke to them they had everything except the “warranty cancellation refund” and still have not from the dealership which WONT return my calls. This morning the full 3,000 appeared on our credit report. It hasn’t even been 30 days since they said they had everything except the warranty. Which is declared cancelled but not refunded. I just got off the phone with them and they claimed it went there because we stopped making payments after it was declared a total loss (we had to get another car) and I never received documentation stating I needed to keep paying on it?! Am I a victim of this? Or is it my fault. Reply

    • Kevin Faulk on March 8, 2018 at 4:56 PM

      I'd love to see if I can help you with this. If you could give me a call we can go over the details. Reply

  • Angie Price on March 20, 2018 at 3:00 PM

    Hi Mr.Faulk I am in the same situation , in 2013 I have a contract that the finance company provided where I purchased GAP with the dealership, but the GAP has no record of the contract or received the $599.00 . What are my chances of winning in court without an Attorney but with my contract? Reply

    • Kevin Faulk on March 21, 2018 at 11:21 AM

      Angie, I'm writing to you about what can be done. Reply

  • Martin on June 26, 2018 at 11:14 AM

    I had purchased a new Mustang GT from a dealership and neither the dealership nor my lean holder provided GAP insurance now my car is totalled due to an accident I was in. I did just purchase GAP through Nationwide but they say that since they were not the initial claim holder they might not be able to cover it. What do I do? Reply

    • Kevin Faulk on June 28, 2018 at 3:40 PM

      Martin, Did you believe that you purchased GAP insurance at the time that you bought the vehicle? Reply

  • Marie K. on August 27, 2018 at 8:33 AM

    I sold my 2014 Toyota Corolla back to the same dealership where I bought the car and purchased the GAP and VSA. So I received a letter from Toyota Financial Services, that I might be entitled for some refunds from Vehicle Payment Protection Products that I bought. I went back to the dealership and request for the cancellation of said products, the guy told me it might take up to 4 weeks before they will issue the refund. I waited, then I noticed it's taking so long. I checked the receipt he gave me, and noticed he marked the box that said, MAKE REFUND PAYABLE TO: DEALER ONLY. I called Toyota Financial Services and asked about the refund, and they said they already mailed it 2 weeks ago to the DEALERSHIP. My question is, can I still get that refund? I didn't noticed that DEALERSHIP ONLY box was marked check when he had me signed the request form. Reply

    • Kevin Faulk on August 27, 2018 at 8:36 AM

      Marie, I may be able to help. I'll email you. Kevin Reply

  • Tian on September 5, 2018 at 5:05 PM

    I bought a 2015 MINI cooper and purchased the GAP protection. Then I canceled the plan because I decided to payoff the auto loan. The dealership said that I can get a full refund, but it has been half a year since I canceled the plan. The dealership has been not responding to my email, not giving me a exact timeline for my refund. Most importantly, they do not give me the insurance company contact for me to directly contact. My guess is that the insurance company already sent the refund to the dealership, but they just keep holding it for some reason. I have been making phone calls and sending emails to the dealership, they often don't respond, the finance person does not even pick up my phone call. Is there any way I can do to get my money back. Reply

    • Kevin Faulk on September 6, 2018 at 12:43 PM

      Tian, I'm emailing you. I think I can help. Reply

  • Melanee on September 19, 2018 at 7:46 AM

    Hi. I am in the process of refinancing my car loan and the new lender said that I need to have the GAP Insurance removed . My question is, Should I have it removed before I sign the new loan papers with the new lender or wait until I have verification from the old lender that it has been applied back to my principal first? Thanks in advance for your help. Reply

    • Kevin Faulk on September 19, 2018 at 2:44 PM

      I would wait until the refinance is completed. That is the more cautious approach, and the GAP amount will come to you instead of just applying to the loan. Reply

  • Robert Mitchell on September 24, 2018 at 7:38 PM

    I totaled my 2015 Chevy Cruze last year but was relieved knowing I had GAP insurance and would not owe any money. The dealer did fully fund the policy so I was good there but GAP refused to pay saying I didn’t have a police report so they couldn’t pay me! Then they refunded the money I paid for the policy to the lender leaving me still owing 2k. I explained there was no police report because the police refused to come out because nobody was injured. They said I had a chance to appeal there decision but only if I registered in there website during a 30day period they never told me about! In fact after filing the claim they never contacted me! I have called the lender, GAP and my insurance company and everybody blames everyone else for not receiving paperwork in a timely manner but they all agree on one thing. That they don’t owe any money and I owe the whole balance! Now I’m receiving demand letters from the lender and my credit is suffering! What can I do? I’m in California Bay Area Reply

    • Kevin Faulk on September 25, 2018 at 7:56 AM

      Robert, I can very possibly help in this situation. I'm emailing you. Reply

  • Frank on October 8, 2018 at 12:00 AM

    Quick question I currently have an auto loan with a lender that has various negative reviews on google by other consumers. I found this out way after i financed the vehicle from them. My issue is they stopped reporting my payments to the credit bureaus since june 2018 and they raised my monthly payment. I called them various times and always get the run around. They apperently added car insurance without my approval. I have my own car insurance so last time i called them and told them that they requested for me to fax them the proof of insurance and would credit my account back once recieved. I faxed it over and the next statement i received, nothing changed. I called again and i got the same answer. I read various consumer comments about this company where people went thru the same thing I'm going thru. This company scams its customers since they know we won't be able to do much. I already reported them to the BBB Reply

    • Kevin Faulk on October 8, 2018 at 9:56 AM

      Frank, I would like to see if I could help you with this. Would you give me a call? Kevin Reply

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