Gap Coverage

[F350]

anyone ever had a client try and file for this when they didnt have it?

I have never sold one of these, just curiosity

 

[jmr30183]

I've had two customers with total loss claims that involved Gap Coverage. Both policies included Gap coverage, one claim went flawlessly (including almost $3000 paid under the Gap coverage) and the other claim was a bit of a nightmare. That customer owed about $6000 more than her car's ACV, so she expected Gap to cover the $6000. But around $2500 of that $6000 was due to negative equity from her trade-in when, which many insurers won't cover under Gap. They only cover the negative equity on the existing (totaled) vehicle, but not rollover from a previous loan.

So that policy paid $3500 plus ACV on the totaled car, which left a balance of $2500 on the customer's auto loan. The customer was IRATE and threatened to sue the insurance company, my agency and me personally. She got very nasty with me and my agency principal numerous times. She consulted an attorney who told her she had no grounds for a lawsuit based on the insurance contract and policy documents.

I include Gap coverage on all new vehicle quotes and, when the customer signs the app, I explain what it does and doesn't cover in detail. Thankfully, I also have the customer initial next to the stipulation that negative equity from a previous loan is not covered. That saved my tail, or at least kept me from having to deal with being sued!

Since that happened, I created a separate form as an addendum to the app that clearly explains what is and isn't covered. The customer has to initial next to each bullet point, then sign at the bottom and a witness also signs (usually the agency principal or the Personal Lines Manager). All agents use that form now and it has saved other agents from lawsuits on at least three other occasions!

I'm surprised that you've never sold one before. Are you captive or independent? If independent, do most of your carriers not offer Gap, at least for new cars???

Several years ago, an agent in my office lost an E&O claim because she didn't include Gap coverage to the customer on their new vehicle. She told the customer that they didn't need it because they made a 20% down payment on the vehicle, so they wouldn't ever be "upside-down" on their loan. But she failed to ask or take into account that they had financed the vehicle for 72 months at a high interest rate! Two years later, they totaled the car and ACV was more than $5000 less than the loan payoff!!! In addition to the loan issues, the customer had racked up 80,000 miles on the car in just two years and that reduced the ACV by almost $3000. Ultimately, the agent and agency principal ended up paying it out of pocket!!!

So I always include it and make sure to get a signature that I have explained it clearly to the customer OR, if they refuse it, I document that and get a signature as well.

One of my carriers offers Loan/Lease Payoff instead of Gap Insurance. It caps the limit at 25% of ACV, so that's the most it will pay. But 25% is sufficient to cover the negative equity on 90+% of auto loans. It's even cheaper than Gap, which is very inexpensive already.

 

[AgentProvocateur]

I've had two customers with total loss claims that involved Gap Coverage. Both policies included Gap coverage, one claim went flawlessly (including almost $3000 paid under the Gap coverage) and the other claim was a bit of a nightmare. That customer owed about $6000 more than her car's ACV, so she expected Gap to cover the $6000. But around $2500 of that $6000 was due to negative equity from her trade-in when, which many insurers won't cover under Gap. They only cover the negative equity on the existing (totaled) vehicle, but not rollover from a previous loan.

So that policy paid $3500 plus ACV on the totaled car, which left a balance of $2500 on the customer's auto loan. The customer was IRATE and threatened to sue the insurance company, my agency and me personally. She got very nasty with me and my agency principal numerous times. She consulted an attorney who told her she had no grounds for a lawsuit based on the insurance contract and policy documents.

I include Gap coverage on all new vehicle quotes and, when the customer signs the app, I explain what it does and doesn't cover in detail. Thankfully, I also have the customer initial next to the stipulation that negative equity from a previous loan is not covered. That saved my tail, or at least kept me from having to deal with being sued!

Since that happened, I created a separate form as an addendum to the app that clearly explains what is and isn't covered. The customer has to initial next to each bullet point, then sign at the bottom and a witness also signs (usually the agency principal or the Personal Lines Manager). All agents use that form now and it has saved other agents from lawsuits on at least three other occasions!

I'm surprised that you've never sold one before. Are you captive or independent? If independent, do most of your carriers not offer Gap, at least for new cars???

Several years ago, an agent in my office lost an E&O claim because she didn't include Gap coverage to the customer on their new vehicle. She told the customer that they didn't need it because they made a 20% down payment on the vehicle, so they wouldn't ever be "upside-down" on their loan. But she failed to ask or take into account that they had financed the vehicle for 72 months at a high interest rate! Two years later, they totaled the car and ACV was more than $5000 less than the loan payoff!!! In addition to the loan issues, the customer had racked up 80,000 miles on the car in just two years and that reduced the ACV by almost $3000. Ultimately, the agent and agency principal ended up paying it out of pocket!!!

So I always include it and make sure to get a signature that I have explained it clearly to the customer OR, if they refuse it, I document that and get a signature as well.

One of my carriers offers Loan/Lease Payoff instead of Gap Insurance. It caps the limit at 25% of ACV, so that's the most it will pay. But 25% is sufficient to cover the negative equity on 90+% of auto loans. It's even cheaper than Gap, which is very inexpensive already.

Thanks for sharing that, jmr. I think an important lesson to learn, from the agent in your office with the E&O claim, is to never place yourself in the position of telling a customer what coverage they don't need. Offer everything, encourage the purchase of coverage you know is needed, explain the pros & cons, and let the customer decide.

As for gap coverage, if you sell for a captive carrier not offering it, you can explain what it does for customers with upside down car loans, and it may be available for purchase through the auto dealer. A signed form acknowledging the unavailability of gap coverage should take care of the E&O. I would think any customer left owing a sizeable amount of money on a totaled car is at least a potential small claims suit. It's harder to be angry and say you didn't do your job when you have their signature on a form explaining what it does, that the company does not offer it, but it may be available elsewhere. Even if there is no real E&O exposure if your company doesn't offer GAP coverage, it may keep you from getting your name dragged through the mud.

 

[blue_wynd]

I've had two customers with total loss claims that involved Gap Coverage. Both policies included Gap coverage, one claim went flawlessly (including almost $3000 paid under the Gap coverage) and the other claim was a bit of a nightmare. That customer owed about $6000 more than her car's ACV, so she expected Gap to cover the $6000. But around $2500 of that $6000 was due to negative equity from her trade-in when, which many insurers won't cover under Gap. They only cover the negative equity on the existing (totaled) vehicle, but not rollover from a previous loan.

Hey care to share that paper for the clients to sign on the Gap insurance so I don't have to draft one up myself? You get 100 internet points.