Gap insurance lowers your risks of incurring additional financial costs that can arise when the dealership agreement has come to the end of the contract.

In addition, gap insurance settles the shortfall of cash outstanding from the initial purchase of your new car to the current date of settlement cash figure. In this article, our lawyers answer some of the most frequently asked questions about gap insurance.

Gap Insurance

GAP Insurance

There are two types of gap insurance coverage schemes currently available: vehicle gap insurance cover and medical scheme gap insurance cover.

Medical gap insurance: There is a waiting period for medical aid gap insurance coverage. Therefore members with pre-existing medical conditions before joining the medical gap insurance will see the length of the waiting period before they qualify for full insurance coverage, which is applicable with that particular existing medical condition. 

Private Healthcare facilities rates continue to rise making it difficult for medical aids to keep their rates in line with these increases  and still be affordable for their members, this is when  gap coverage comes to the rescue by covering the shortfall difference payable between these two rates from  the medical aid members.

Vehicle gap insurance: Gap insurance coverage with vehicle coverage is immediate.

What is a gap insurance refund?

A gap insurance refund is an add-on coverage that helps bridge the gap between your principal balance on your loan and your vehicle’s actual cash value in the event of a total loss.

Suppose you settle your gap insurance policy in advance with one entire lump sum of money payable. In that case, you will receive a refund for the months stipulated on your lease agreement period that was not used . However, if you opt to pay your gap insurance in monthly payments, you won’t get a refund on any past months.

While you won’t get a full refund on your gap insurance policy, you can get a portion back once your car’s original agreed lease balance. How a gap insurance refund works depends on how you go about paying off your auto loan:

  • Lump-Sum Payment: You are then entitled to a refund on the unused portion by paying off the gap insurance refund policy in advance.
  • Monthly Payments: If you pay your premiums monthly, you won’t get a refund on any past months. However, you may get a small reimbursement if you cancel early in the month.
Medical and vehicle gap insurance
What is a gap insurance refund
gap insurance refund if you pay off your car early

Do you get a gap insurance refund if you pay off your car early?

Yes, you will be entitled to a partial gap coverage refund that you do not use if you pay your vehicle off early.  Gap insurance will cover both the purchase price of your car and the term of the loan. If there is a reduction in the long-term loan amount payable due to earlier payment, then likewise, you should receive a refund from your gap coverage as well. You will have to show your car insurance provider a payoff notice for you to receive this refund and this will be when your  regular motor insurance refuses to payout due to the following reasons; 

  • When you have been negligent, and you have left your keys in your car unguarded.
  • You are under the influence while driving your vehicle or when you were using your car for other purposes such as for courier or taxi use
  • When the car has a catastrophic mechanical failure like an engine or gearbox blow up
  • Also, when the gap policy is in your name, the vehicle ownership and finance agreement are in someone else’s name, not your name.

Have any gap insurance refund lawsuits been filed?

Yes. For example, in 2018, a class-action case was launched against Wells Fargo, a multinational financial services company. Wells Fargo failed to offer gap insurance refunds to customers who terminated their vehicle loans earlier than the specified loan contract period. Shamis and Gentile Law represented these clients and managed to get a $500million settlement of refunds for them.

gap insurance refund lawsuits
Do you need gap insurance
considering gap insurance for your vehicle

Do you need gap Insurance?

Yes, gap insurance is great to have with  your medical aid as it will protect you in the event that your doctors fee is more than what your  medical aid rate will be prepared to pay , in this case the cash shortfall between these two , your gap cover insurance will settle.

If the value of your vehicle is higher than the amount you owe, you don’t need gap insurance as there is no shortfall. In some cases, gap insurance cover is a  requirement by your financing company to protect all parties against losses.

If your loan outstanding is close to the value of your vehicle, you will see very little or no refund in the event of a motor vehicle accident, or motor vehicle theft refund claim submitted.If the value of your car is less than the money you owe on your vehicle loan, then gap insurance save  you from paying the shortfall out of your pocket. If the value of your car is higher than the loan amount you owe, however, you will not need gap cover insurance, as there will be no shortfall.

A point to remember when considering gap insurance  for your vehicle is that a used vehicle  depreciates much slower than a new car. For example, a brand new car will decline in the first three years by 70%, and a used vehicle will only depreciate 30% over three years.

Is gap insurance worth the money?

Yes, especially if you are financing a vehicle with a high depreciation rate, gap insurance is a must. Luxury cars, for example SUVs and electric vehicles, see plummeting values after the first few years.

Also, gap coverage includes New Car Replacement Insurance for the first year of ownership, and gap insurance will pay the difference between the value of your vehicle and the amount of your original loan, up to 120% of the value of your car.

Pros of gap insurance

  • If gap insurance covers your car, then you will have less financial burden in the event of either  an accident, theft, or vandalism damages to your car 
  • You will be able to purchase an expensive car without worrying about financial risk over time.
  • The annual cost to have gap cover is low. It is about $100 or less.

Cons of gap insurance

  • At a certain point, the difference between what you owe and your car’s value will drop to such a degree that it won’t be worth having.
  • It is an extra expense on top of your monthly payments and regular upkeep
  • If you pay a low price, to begin with, it might not be necessary.
Is gap insurance worth the money

Can I file a gap insurance refund lawsuit?

A class action lawsuit was filed  in 2018 against a major bank, Wells Fargo, by its customers represented by Shamis and Gentile who claimed the bank refused to refund gap insurance to their customers who terminated their loans with the bank .This lawsuit was successful and Wells Fargo was ordered to settle refunds in dispute to the value of $500million.

If you had a Wells Fargo car loan and you ended your loan by either refinancing, selling or trading your car and were not compensated for your gap insurance refund  then you may still be able to claim a gap insurance refund.

Does gap insurance get refunded if not used?

You can get refunded on unused gap coverage, in a situation if you have a loan term of sixty months and pay off your loan earlier than the term period of sixty months, you will receive a partial gap insurance refund for the balance of the months not used.

How do gap insurance refunds work?

You will need to request all the necessary forms to cancel the insurance plan, and you should request a copy of your original vehicle loan agreement.

The step-by-step procedure that you should follow when applying for a gap insurance refund:

  1. Ask your dealer for an odometer reading of your car; you must have the mileage reading and verify it.
  2. Contact the bank who gave you your car loan, for your car’s settlement figure. The bank should send you a detailed document specifying the money you borrowed, the costs set aside for gap coverage, and the amount which qualifies for a refund.
  3. You should only cancel the gap coverage once the sale is final.
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How do gap insurance refunds work

At Shamis and Gentile, we can assist you with filing a lawsuit and getting the gap coverage you are entitled to. In addition, we give you a free consultation and you will not have to pay us a cent if you don’t recover your refund. We also give you immediate feedback on the same day that you contact us to attend to your lawsuit.