Question:
I understand that GAP insurance covers the gap between what i paid, and the actual value of the vehicle several months later if it is a total loss in an accident. It covers the natural depreciation of what the car is actually worth and what the insurance company will pay. I am curious if it also covers the negative equity due to not getting what i owe on my trade-in. The dealership is giving me $1,500 less than i owe on my trade-in, and rolled that negative equity into my new loan. I can understand that gap insurance will pay the difference if i buy a car for 20K, and 3 months later it is totalled. Obviously the insurance company will pay what the market value of the car is, and not what the loan is since the car loses value as soon as you drive it off the lot. Why would they pay the negative equity also that was rolled into the loan? Or do they?
Answer:
GAP is only for accident.
Because there is no insurable interest in the previous negative equity in the other car.
If there is a total loss, the regular insurer is going to take title to the current car. The GAP insurer just takes a loss on that car, but they no longer have an insurable interest in the traded-in car and thus they are not going to pay you the remaining negative equity in the old car.
Hopefully, they or someone else will get you some advice on how to get better deals when car shopping.
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