Gap insurance.?

Question

if you have taken gap insurance over 3 years and after 2 years you write of your car does it pay of what you owe on the finance and does the rest come to yourself. for example if car worth 5 grand and you have paid 3 grand of car does other 2 grand come to you

Answer 1

It's not about what you've paid and what it's worth.  It's about what you owe and what it's worth.

When you took out your loan, the finance company owned all of your car except what little you paid down.  Chances are, the resale value of the car when you drove off the lot was lower than what you owed.  (It's now a used car.)

That means that if you total the car a block from the dealer, the basic collision insurance would only pay for the Blue Book Value, which will be less than you owe.  You still owe the finance company the entire loan value, though.

The difference between what collision insurance would pay (Blue Book) and what you owe is the "gap."  None of that money is yours.  It all goes to repay the finance company for the money you borrowed.

If you put a huge down payment on the car, or if you've paid off enough so that you have equity in the car (It's worth more than you owe.), there is no "gap" and gap insurance pays nothing.  In that case, the collision insurance pays the Blue Book value of the car (or whatever measure they use), and the difference between that and what you owe is yours.  Gap insurance doesn't enter the picture in that case.