You will need to read though the terms of your Gap insurance policy but it sounds correct from what the typical terms of a Gap insurance policy usually state. It quite normal for a GAP insurance carrier to limit their settlement to 120 percent of the value of your vehicle, which should be stated in your Gap insurance policy for your to read, and thus leaving you any balance on the loan to pay out yourself.
Gap insurance is there to help you bridge (pay) the "gap" made when you owe more than a vehicle is worth. This is typically done from being upside down on a loan due to you not putting much money down and a car being worth less as soon as you drive it off the lot and add more miles to it.
Gap insurance's purpose is not to help pay off late payments, old loans rolled into the new car loan, etc so for that reason Gap insurance carriers normally have a list of restrictions and exclusions on the policy. Possible exclusions/policy rules within a Gap insurance policy include:
- Maximum Limit of Loss: $50,000
- A GAP claim settlement may not cover the entire gap due, when your loan's Original Amount Financed exceeds 120% of MSRP (new vehicle) or NADA Retail Value (used vehicles), plus 30% of Value allowable for Additional Financed Items like Credit Life or Service Contracts.
- The claim settlement does not cover late charges or other penalties due to your lender.
- Your loan amount financed must be less than or equal to $100,000.
- Your loan term must not be greater than 84 months.
- The loan must not have a balloon payment due at the end of the term.
- The maximum APR is 12.5%
As you can see from the second item listed here it is pretty normal for a Gap insurance provider to limit the claim settlement to 120% of the value of the vehicle. You can read through the terms of your policy and speak to your Gap insurer to seek clarification if you have questions about their settlement with you. If you get the answer you seek from your Gap insurance provider and do not see this limitation listed in your policy than you may want to contact your state's insurance regulator for consumer advice on your situation.
Only the government is allowed to authorize large bailout amounts on debt that exceed the value of the instrument.
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