Many loan gap policyholders wonder if their insurance becomes void if they are ever more than thirty days late with an auto payment.
The answer to this common question is that a gap insurance policy is not voided by a late car payment. Gap insurance is not automatically cancelled when a policyholder is behind on a payment, but it will matter if the vehicle is ever totaled before the payments are brought up to date, the payouts from your coverage will not include those overdue payments though.
What gap coverage will typically provide is a payment for the difference between the remaining balance that is due on a car loan’s lien holder, and the vehicle’s actual cash value (ACV). That said, there are some conditions and exceptions that apply to the majority of gap policies, including late payments on the vehicle.
If you were granted a payment holiday which diverts some of your payments to the end of the loan period, or if you have overdue payments, these payments will not be included in your gap coverage. The reason is that if those payments were made on time, they would not have applied to the total that would be due at the time that the vehicle was totaled.
The standard gap insurance policy will not usually cover:
• Overdue payments on a lease or loan
• Costs associated with credit life insurance, extended warranties, and additional forms of insurance that were purchased alongside the lease or loan.
• Balances carried over from previous leases or loans
• Security deposits that have not been refunded
• Amounts that had already been deducted by the primary insurer due to towing, wear and tear, storage, and prior damage
• Financial penalties imposed for excessive use on a lease
• Equipment that has been added to the vehicle by the buyer beyond what was factory-installed.