Gap insurance is normally an optional type of insurance that one may prefer to sign up and pay for if they are going to owe more than a car is worth.
There are no state laws that require GAP insurance. Some contracts can require it. Companies are paid a commission or fee when they sell GAP insurance.
If you are upside down on your loan, meaning with financing you are paying more than the actual cash value (ACV) of the vehicle, for example if you are paying off $7000 but as soon as you drive off the lot and with depreciation the car is only worth $6000 then you owe $1000 more than ACV, then you may want to choose to include gap in your payment but the right should be yours to make.
To the best of our knowledge if you have declined GAP insurance the dealer should not be able to add it on to your loan amount or charge you for it in another way. Even though GAP insurance may be helpful to you, if you owe more on the vehicle then its actual cash value and were to be in an accident, you should have the right to turn down this coverage and thus not be charged for it.
In some states car buyers have a Bill of Rights that they can read on their Department of Motor vehicles website that helps explain consumer rights. One example of this is the Car Buyer’s Bill of Rights that California has.
This CA bill of rights requires disclosure of the price of items commonly packed into loans, such as theft etching on windows and other car parts, GAP insurance, or extended service contracts. Dealers now must provide an itemized price list for all these items, such as warranties and insurance, etc., if the items are being financed. Find out from your state's DMV if they have a similar bill of rights.
If you do not wish to have GAP insurance coverage discuss the matter first with the financing company that added into your payment. Unless you signed paperwork stating that you would add GAP coverage to the car at the time of purchase as part of your finance or purchase agreement you should be able to decline it.
It could be that the company you are working with add it into the payments as a benefit to car owners that are upside down on the car or it could be a way in which the person gets extra commission for the sell of this type of insurance.
If you are not upside down on your loan there would be no need for this type of insurance coverage on the vehicle you bought. If you do not want gap insurance and have problems getting it removed, try contacting your state agency's consumer division. The office of the insurance regulator may be able to help.