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Does a late car payment void out gap policy?


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Question: Is your gap insurance voided out if you are 30 days late with your car payment?

Answer:  No.  Being late with your car payment won’t void out your gap insurance policy. 

Getting behind on your car loan doesn’t automatically cancel out your gap insurance, but it does mean that if you total your vehicle before you catch up, your gap insurance wouldn’t pay out for the payments you are behind.

Gap insurance usually pays out the difference between your wrecked car’s actual cash value (ACV) and the remaining balance due to your lien holder on your car loan.  But there are exceptions and conditions to gap policies for certain items, such as late car payments.

If you have overdue payments or were granted a payment holiday so that some payments were moved to the end of your loan, this amount wouldn’t be covered by your gap insurance policy, since if had you paid on time these monies would not have been due at the time of the total loss. (See "What gap insurance does -- and does not -- cover")

Gap insurance won’t normally pay for:

  • Overdue lease/loan payments
  • Costs for extended warranties, credit life insurance, or other insurance purchased with the loan or lease
  • Carry-over balances from previous loans or leases
  • Financial penalties imposed under a lease for excessive use
  • Security deposits not refunded by the lessor
  • Amounts deducted by the primary insurer for wear and tear, prior damage, towing, and storage
  • Equipment added to the car by the buyer, meaning that only factory-installed equipment is covered

When you have an overdue car payment it is something that you need to rectify with your lien holder.  If you get back on track and keep your car, you keep your gap insurance; just don’t expect your gap policy to pay out for any past-due payments if you total out your vehicle. 

If your car is repossessed, then your gap policy will end since you no longer have the vehicle.  Gap insurance doesn’t pay out if your car is repossessed, since that is not a covered peril by your primary car insurance company.

More articles from Penny Gusner



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