One thing you can be sure of, if there is a way for a car dealership to make more money from its customers, it will figure out how to do it. Gap Insurance is a good example. Gap insurance is an insurance policy to protect you against “gaps” in your payments toward your financing. Here is an example:
You buy a new or used car from a dealership. You can’t afford to pay cash for it. So, you finance your purchase through a bank. The bank loans you the money to buy the car, and then you pay the bank back over a series of months or years. Car dealerships will also try to sell you Gap Insurance. If something happens to you or the car that disrupts your regular monthly payments, the Gap Insurance is supposed to kick in and cover your monthly payment(s).
One scenario where we see Gap Insurance is when a financed vehicle is in an accident and totaled by the auto insurance company. Gap Insurance is supposed to kick in and pay off your financing if the auto insurance company does not cover the full outstanding balance. Here is another example:
You buy a car and finance $10,000.00. Over the coming months, you pay the financing down to $8,000.00. Then you are in an accident and the vehicle is totaled. You are technically on the hook still for that $8,000.00. Your standard auto insurance should pay the bank for the totaled car. However, if your auto insurance doesn’t pay the full outstanding balance, Gap Insurance kicks in. So, maybe your auto insurance only pays $5,000.00 when it totals the vehicle. That leaves $3,000.00 to be covered by Gap Insurance.
It should not come as a surprise that Gap Insurance will then do everything it can to avoid paying the full outstanding balance. One way Gap Insurance gets away with this is by saying your vehicle had scratches or dents before the accident that lowered the value of the vehicle. That leaves it as your responsibility to pay whatever Gap Insurance won’t cover. In some cases, this could be a lot of money.
You should never take the insurance company at its word. If your vehicle wasn’t in the condition claimed by the Gap Insurance company before the accident, then it is bad faith for the Gap Insurance company to offer less than the full outstanding finance balance. The bad faith claim is an unfair trade practices claim that could reward you with three times your damages and cover your attorney fees.