The Real Truth Behind Finance and GAP Auto Insurance Coverage

2006 Kia Spectra

What’s GAP coverage you ask? Simple (or is it?)…if you finance a vehicle nowadays, most, if not all financial institutions will require you to carry GAP coverage. Fees range from company to company, but they generally run for a few hundred bucks. The premise is that if your vehicle were to be stolen or totalled (as my 2006 Kia Spectra EX was), and you owe more on your vehicle than what it’s “worth”, then GAP coverage is supposed to kick in and make up the difference.

Or so they say.

At least, that’s what I was lead to believe at the dealership whenever I purchased my car.

I actually had two GAP coverage policies…the first one that I purchased was whenever I purchased the car back in August of 2006, through (insert company here) for $329 bucks. Sweet I thought, if I had to actually use this, this will come in really handy. The second one that I purchased was through my own insurance company, eSurance. I’ve been with them for nearly five years, and overall, I would rate them as excellent. Instead of paying a lump sum, they would charge me $17 bi-annually…a fair price I felt like. I felt like with two GAP coverage policies, if for some reason one of them did not go through, well…at least I would have the other one. I didn’t know how true that would become.

It all started whenever my initial claim on my Spec was coming to a close. My adjuster had contacted me to inform me that they were going to cut a cheque to my auto finance company (Santander, formerly with Citifinancial Auto…they basically purchased all of the notes since Citi was apparently getting out of the auto loan business). I knew that the amount of the payoff from my insurance company was going to be less than what the remaining balance on my vehicle would be, and I was right…to the tune of a remaining balance of  over $1900 and some change. I was fine with that, because as I mentioned earlier, I had two GAP coverage policies. I honestly hadn’t thought about that part, and figured that would be taken care of.

I was wrong. Really wrong.

I had asked my insurance adjuster about starting the GAP coverage claim, and he did an 180 on me, suddenly not willing to want to bend over backwards to help me out anymore. Typical insurance company, wanting to not do anything above and beyond what they’re required to do. Heaven forbid if they’re not making a killing off of me to begin with! He acted like I was inconveniencing him from his daily life of Facebook stalking and writing emails to be bothered with filing this claim. In fact, he told me that “yeah, we’ll see what we can do”. Keep in mind that I have a remaining balance due with Santander, and they’re asking for their money. Now.

Not really wanting to rock the boat, I told him that was fine, and I proceeded to wait. I figured, just like everything else that has transpired thus far, that he would get back to me within a day or two. One week later, he calls to let me know that since I had “late fees” totalling $700 (the total amount of late fees that I had paid over the course of the loan, although there were none outstanding), and that I had an extended warranty (that was already paid for and expired over two years ago) that was $2,300, the total amount of those two items ($3,000) had exceeded the amount that they were going to pay, which was 25% of the fair market value that was determined at $5,200…or approximately $1,300.

Not only was this devastating to me, but he could of cared less about how I felt, or how this would have impacted my life. Basically, his attitude was like, “yeah, that’s it…too bad”. Didn’t offer to provide additional assistance or anything. I pretty much thought that I was screwed, even though I have the other policy (I’m currently filing a claim for that as well). Not willing to let this one go, since I felt like he was wrong, I took to the airwaves…or more specifically, to eSurance’s Facebook page. I aired my grievances. Once I had posted on their page, I got a call a few hours later from my old medical adjuster. Once I explained to her what was going on, she stated that she would investigate it further, and would find out from my old adjuster how he arrived at the conclusion that I had $700.00 in late fees, even though I didn’t have any current ones.

Just to recap, a GAP coverage policy does not cover:

1)Any negative equity that was rolled into the vehicle purchase loan. For instance, if you had purchase an $30,000 car, and were trading in a car that was worth 15,000 dollars, but you still owed 18,000, that would be 3,000 in negative equity that is financed into the loan itself. Nowadays, it would be surprising of any lender would approve a loan on a vehicle over 100% of the purchase price. I would recommend either paying down the amount owed on the vehicle to the point where you can create some positive equity (or break even), or if your credit is strong enough, to not trade in the vehicle, and continue to pay down that vehicle, along with the new one. That being said, most companies will not finance what’s referred to in the auto industry as “two opens”, meaning that you have two active vehicle loans.

2) Any extended warranty that was financed with the vehicle. By the time that you’re in the F&I office crossing the Ts and dotting the Is, you’re already beat down by the whole process. The F&I Manager will hit you up for an extended warranty on the vehicle. Whether or not you want to purchase one is up to you. As a general rule of thumb, I would recommend: Any base model new car under $35,000 – generally one is not needed. Most cars these days are generally reliable, contingent on how well you maintain your vehicle. Any new car that has any type of electronic device (re: infotainment system) in it, and/or a purchase price of over $35,000 – I would recommend it, especially if it is a luxury car. Luxury automakers generally charge more for parts and services, although most companies are using the same parts as their mainstream vehicles, Toyota included. Any used vehicle, or Certified Pre-Owned vehicle – I would check out what the CPO warranty covers on the vehicle…generally they will extend the bumper-to-bumper warranty (on Toyotas, it is 3 years or 36,000 miles, whichever comes first, and that starts at the original purchase date) another year or two, and then slap on a powertrain warranty for up to 100,000. Before you purchase any extended warranty, be sure to read it carefully and make sure that it will cover the major components that could fail and cost you thousands.

3) Any late fees that are accrued during the life of the loan. Not only will paying on your loan help increase your credit score, but they will take into consideration any active late fees, should you total or have your car stolen. It pays to pay on your car note every month.

Here are some options:

Pay early – this way, you’ll avoid paying any late fees, and you will not have to worry about coming up with the money by the due date.

Pay more than the minimum amount – not only will this pay off the loan faster, but you will have a credit that will carry over until the next month. You could also set it up, in case that you needed additional money for other expenses the following month…or for birthday/Christmas shopping. You know, the essentials.

Set up an EFT – definitely the easiest way to go. Just provide your finance company with your bank account information, and they will take care of the process for you. If you wait until right before the due date to get this started, you will have to go ahead and make another payment, as it takes some time for the finance company to get this all set up. Keep in mind that your finance company is dealing with a bank, so it won’t happen right away.

By doing all of these things, you can avoid a major headache, in the event that you were to either total out your car, or it were to be stolen and the insurance company/police department is unable to recover the vehicle. Take it from me, it’s worth it.

Update: my insurance company made things right, and decided to honour my GAP coverage claim. Read all about it here.

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