When Does Gap Insurance Not Pay (9 True Reasons)


Have you ever wondered when does gap insurance will not pay you? Well, look no more. We´ve got you covered.

Gap cover insurance is a vital option when your vehicle’s book value is less than the balance owed on your loan or lease. Vehicle owners may be left out of pocket in the event of an accident when the car is written off or stolen.

However, vehicle owners should be aware of the ‘gaps’ in gap insurance payouts and the reasons gap cover might not pay out. 

Gap Insurance does not pay out if your primary insurer rejects your claim or you use your car for commercial use on personal car insurance. Gap insurance will not pay if you transfer ownership or you have no insurable risk in your covered vehicle. Lapsed gap premium payments are also a reason your gap cover will reject your claim.

The list below shows the 9 true reasons why your gap insurance will not pay you:

–           Your Primary Auto Insurer Rejects Your Claim

–           Your Gap Cover Does Not Cover Commercial Vehicle Use

–           You Have Stopped Paying Your Policy

–           If you Sell Your Vehicle or Transfer Ownership

–           The Gap Policy Has Already Paid Out

–           There is no Gap Insurance Shortfall

–           Your Insurance is not Fully Comprehensive

–           You Failed To Notify Your insurance of Modifications

–           The Person Who Took The Gap Cover Has no Insurable Risk

If you consider taking out gap insurance, you need to be sure that you leave your insurer’s no legal recourse to reject your claim when you need it most.

If you want to ensure that your gap cover insurer pays out, here are nine true reasons your gap cover insurance will not pay. 

What Is Gap Insurance?

Guaranteed asset protection or gap insurance is a type of auto insurance that protects car owners from the sometimes costly shortfall between insurance cover in cases of total loss and the amount owed on the vehicle’s financing or lease terms.

Gap insurance is vital when your car’s book value is less than the balance amount owed on the vehicle. 

Read also: Is RV GAP Insurance Worth It? [Guide for Nationwide Camper & RV]

How Does Gap Insurance work?

Gap insurance works as a supplemental auto policy that works with your existing comprehensive auto insurance to cover the shortfall between your car’s insured value and the loan or lease payment you still need to repay.

If your vehicle is written off or stolen before you repay your loan, gap insurance covers the difference between your auto insurance payout and the amount you still owe on the car.

Purchasing a new car is a sizable investment that may leave you with a long-term loan in considerable excess of the car’s actual cash value.

When the loan repayment of your vehicle is at substantial odds with your vehicle’s vehicle’s book value you may need extra protection.

“Gap cover provides you the supplementary shortfall between your car’s value and the interest accrued over the lifespan of your vehicle loan or lease.”

As wonderful as this may sound, there exist several reasons why your gap cover insurance may leave you high and dry in the event of the theft or the unfortunate event of you totaling your car. 

Read also: The 4 Best RV Insurance for Full-Timers: A Dollar-Saving Guide

9 True reasons Your Gap insurance Will Not pay

#1. Your Primary Auto Insurer Rejects Your Claim

The top reason your gap insurance will not pay out is if your primary auto insurance rejects your claim.

As gap cover provides the shortfall between your insurance and the value of your car or your loan repayments, gap insurance typically falls away when your primary insurer refuses to payout.

Auto insurers may reject your claim for several reasons, the most common being:

  • Your premium payments have lapsed past the insurer’s grace period. Typically insurers give a minimum of 15 days or sometimes longer for clients to catch up on missed payments. If your payment has lapsed past the specified time frame, your insurance will not payout in the event of a vehicle accident. 
  • Non-disclosure or misrepresentation may give your insurance agency grounds to reject your claims. If, for example, you did not divulge the history of prior accidents or a medical condition that affected your driving, such as epilepsy. 
  • Your insurer may reject your claim if unspecified or unlicensed drivers use your car and are involved in an accident. They may also refuse to pay out if someone steals your vehicle when someone other than yourself drives the car.
  • Insurers often reject claims if the insured vehicle is not roadworthy. For instance, if you are involved in a collision due to worn brakes, you will not be covered to lose your car or third-party damages. 
  • Reckless driving or driving under the influence of alcohol is a common reason for an auto insurer to reject your claim.
  • Vehicles under private insurance are not covered if the accident happens when the driver uses the car in a commercial capacity
  • If you do not securely park your vehicle at night, typically, insurers will not cover loss by theft.
  • If your auto insurance does not cover you for ”write-offs,’‘ such as in the case of third-party cover, your insurer will not pay you out the total value of your vehicle or outstanding loan payments.

#2. Your Gap Cover Does Not Cover Commercial Vehicle Use

Sometimes the line between commercial car use and personal may be challenging to define, leaving vehicle owners at a loss when an accident occurs.

Particularly with small business owners who might use their personal vehicle to travel to job sites or transport equipment or employees. 

Typically personal auto insurance excludes business use, meaning that your insurer will not cover the damages if you have an accident while performing work-related driving (barring commuting).

Most gap covers do not cover commercial activities in their standard cover, even when your motor insurance might include such cover.

  •  Transporting work goods or equipment
  • Driving clients or employees
  • Performing a service in your vehicle for which you receive payment
  • Charging passengers a fee to ride in your vehicle
  • Charging people a fee to transport goods in your vehicle
  • Hauling heavy, work-related loads
  • Towing a trailer used for business.

Read also: What Does RV Insurance Cover? A Comprehensive Guide

#3. You Have Stopped Paying Your Policy

Whether you choose to pay your gap cover every month or through a credit agreement, your cover will automatically fall away if you stop making your payments.

Insurers are bound to give policyholders a grace period to pay their premium before the policy lapses. This period is typically for 15 to thirty days after the lapsed payment. 

Insurers are legally bound to give their clients a period of time to make up their payments before the policy falls into a lapse.

The grace period is usually between 15 and 30 days to catch up on their payments before the policy lapses, and the protection falls away. 

#4. If you Sell Your Vehicle or Transfer Ownership

If you sell your car, the person who buys the vehicle from you needs to take on their own auto insurance policy.

You may not transfer your gap insurance even when you change ownership between family members.

For instance, if a father purchases a car for his son, the change of ownership will typically prevent the father from claiming gap insurance if the original invoice is still in his name. 

Although you may transfer your vehicle title and warranty, gap cover is not something one may transfer between owners.

This type of coverage is only available if you are the original loan or leaseholder on a new vehicle. 

#5. The Gap Policy Has Already Paid Out

Gap cover insurance exists as a once-off cover, and you may only claim on this cover in the event of a total loss of the vehicle under the cover.

Once gap insurance pays the shortfall for your vehicle value, the insurer automatically terminates the policy, even if you have time remaining on the cover. 

Once you replace your vehicle, the new replacement vehicle will require a new gap insurance policy.

#6. There is no Gap Insurance Shortfall

Gap cover insurance only covers the difference between your vehicle’s cash value versus what you still owe on your car loan.

“If you made a downpayment of at least 20% on your car when you bought it and are paying off the loan in under five years, gap insurance might not be necessary.”

Thus when your loan balance and car value are equal, gap coverage will not pay out as there’s no gap between your auto insurer’s settlement and the original price you paid for your car. 

Gap coverage is there to make up the shortfall between the price you paid for your vehicle or clear a finance or lease settlement; if none exists, your Gap insurance will not payout. 

#7. Your Insurance is not Fully Comprehensive 

Your gap cover insurer may reject your claim because you did not sign up for comprehensive insurance for a full policy term.

For example, third-party car insurance only covers the damages you may cause to another vehicle in an accident.

Therefore, you will be liable for the repair and replacement costs of your car yourself if the damage incurred is your fault. 

As gap cover insurance exists to provide the shortfall between the value of your car and the amount that your primary insurer pays out, if your insurance is not comprehensive, your gap insurer will not pay. 

#8. You Failed To Notify Your insurance of Modifications

Insurers typically exclude vehicle modifications or customizations and aftermarket parts from standard auto insurance policies.

Should you fail to declare your modifications regardless of whether the omission was intentional, your auto insurer may deny your claim. 

This would have the unfortunate result of your gap coverage not paying out.

So, if you modified your vehicle after you took out gap insurance, such as overclocking and lowered suspension, it is unlikely your gap cover will cover you after that and even less likely to pay out after an accident. 

#9. The Person Who Took The Gap Cover Has no Insurable Risk

The person who takes out the gap cover must have an insurable risk or stand to lose out financially should the car be destroyed or stolen. Those with insurable risk include:

  • Buyers who paid for their vehicle in cash and have the invoice in their name
  • Buyers of a vehicle who took out a personal loan for the car in their name
  • Personal contract purchase Hire purchase financed deals in a person’s name that is named the vehicle owner on the sales invoice
  • If you hire or lease a car with no intent to own the vehicle but are legally responsible for settling the lease in the event of a total loss, not for ownership or purchase price but merely the lease payment terms. 


Gap insurance may save the day if you find yourself without the vehicle so necessary for your livelihood and life in general.

Having to pay in a massive shortfall when you need a new set of wheels is the last challenge you need after losing your vehicle in an accident.

So it is best that you ensure that you have covered yourself properly in terms of legality before you sign the dotted line of your gap policy.  




Mike Gilmour

Hi, I'm Mike, co-founder, and editor of RV and Playa. My passion is traveling (with my RV) and enjoying the day at the beach (Playa)! Well, I originally created this blog as a way to share what I've learned by experimenting with the RV lifestyle, and I want to help others develop in life through new skills and opportunities.

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