Jul 3, 2024
When Manny Munoz’s BMW X5 was totaled after being rear-ended last year, he figured he had enough insurance to cover a total loss.
Munoz, of Peoria, Arizona, thought he made a smart financial move when he bought the luxury SUV with the help of an auto loan back in 2020.
Advertisement
Knowing the car — which he described to AZ Family’s On Your Side as fully “loaded” with all the latest technology and gadgets — would likely depreciate in value faster than he could pay off his loan, he purchased what is known as gap insurance in addition to normal car insurance.
Guaranteed asset protection (GAP) insurance is designed to pay the difference between the actual cash value of a vehicle (after it’s damaged or totaled) and the balance still owed on the financing.
Don't miss
- Commercial real estate has beaten the stock market for 25 years — but only the super rich could buy in. Here's how even ordinary investors can become the landlord of Walmart, Whole Foods or Kroger
- Car insurance premiums in America are through the roof — and only getting worse. But 5 minutes could have you paying as little as $29/month
- These 5 magic money moves will boost you up America's net worth ladder in 2024 — and you can complete each step within minutes. Here's how
In Munoz’s case, he bought the BMW for $60,517.86. At the time of the accident in late 2023, his insurance company wrote him a check for $26,709 — the vehicle’s total value — but he still owed $45,360 on the loan — meaning he had a financial gap of $18,651, which should have been covered by his gap insurance.
However, his sizable gap insurance claim was initially denied over a 60-cent error in his auto loan paperwork. After seven months trying to claw back the whopping sum, he sought On Your Side’s help to get his expensive issue resolved.
Here’s what happened — and how gap insurance could save you from serious financial pain.
Must Read
- Dave Ramsey warns nearly 50% of Americans are making 1 big Social Security mistake — here’s what it is and the simple steps to fix it ASAP
- Robert Kiyosaki begs investors not to miss this ‘explosion’ — says this 1 asset will surge 400% in a year
- Vanguard reveals what could be coming for U.S. stocks, and it’s raising alarm bells for retirees. Here’s why and how to protect yourself
Join 250,000+ readers and get Moneywise’s best stories and exclusive interviews first — clear insights curated and delivered weekly. Subscribe now.
A 60-cent glitch
When Munoz bought his BMW X5 back in 2020, he knew he was paying a premium for it, hence why he bought extra insurance protection. It was the height of the COVID-19 pandemic, and with supply chain issues limiting the availability of brand new cars, many dealerships hiked their prices.
He sought financing through the car dealership for the $60,517.86 purchase price, but what came back from the credit union was an auto loan totaling $60,517.26 — 60 cents shy of the agreed price.
Advertisement
No one caught that 60-cent mistake until Munoz submitted the $18,651 claim to Safe-Guard, his gap insurance company, which he says denied payment over the discrepancy in the paperwork.
“It was kicked back because the loan amount didn’t match the contract amount,” Munoz said. He then spent seven months trying to close out his claim with no success until he contacted On Your Side’s Gary Harper, who broadcast the story on June 4.
“I don’t have a problem with being patient, I think I’ve been more than patient,” Munoz said.
Read more: Don’t leave your family unprotected — find life insurance coverage up to $2 million with no medical exam or blood test
Harper contacted Safe-Guard and questioned them about Munoz’s claim. On June 25, On Your Side reported that Munoz finally received a check from the insurance company worth over $18,000.
Advertisement
So, while Munoz’s story had a happy ending, there are lessons that can be learned from his ordeal. Namely, do your market research when buying a car to ensure you’re not overpaying, make sure you have enough insurance coverage (and don’t leave any gaps) and always double-check your documents before signing any purchase agreements. This could save you from a costly mistake.
What is gap insurance?
When you buy or lease a new car or truck, it will start to lose value as soon as you drive it off the lot. While depreciation rates vary by vehicle, cars typically shed about 20% of their value in the first year and about 60% within the first five years, according to auto research company Kelley Blue Book.
If your car is totaled, standard auto insurance policies will pay out the current market value of a vehicle at the time of a claim. So, if you bought a car for $20,000 and your car is totaled five years later in an accident, your car (and insurance pay out) may be worth around $8,000.
This could cause problems if — like Munoz — you bought your vehicle using financing, because the amount of money you own on an auto loan or lease may exceed the insurance pay out you would receive in the event of severely damaging or totaling your car.
This is where gap insurance comes into play. It will reimburse you the difference when the insurance pay out for a total loss is less than your outstanding loan or lease balance — ensuring that you’re never upside-down or in negative equity if your car is a write-off.
You can buy gap insurance from most standard auto insurers or auto dealers. The Insurance Information Institute says it's a good idea to consider buying gap insurance if you bought a car or truck with less than a 20% down payment, you financed the vehicle for 60 months or longer, you bought a vehicle that depreciates faster than others or rolled over negative equity from an old car loan into the new loan.
Read More: Dave Ramsey says this 7-step plan ‘works every single time’ to kill debt, get rich in America — and that ‘anyone’ can do it
What to read next
- Lock in juicy quarterly income through this $1B private real estate fund — even if you’re not a millionaire. Here’s how to get started with as little as $10
- 82% of Americans are missing out on a savings account that pays over 10 times the national average
- Stop crushing your retirement dreams with wealth-killing costs and headaches — here are 10 'must-haves' when choosing a trading platform (and 1 option that has them all)
You May Also Like
- Turning 50 with $0 saved for retirement? Most people don’t realize they’re actually just entering their prime earning decade. Here are 6 ways to catch up fast
- This 20-year-old lotto winner refused $1M in cash and chose $1,000/week for life. Now she’s getting slammed for it. Which option would you pick?
- Warren Buffett used these 8 repeatable money rules to turn $9,800 into a $150B fortune. Start using them today to get rich (and stay rich)
- Here are 5 easy ways to own multiple properties like Bezos and Beyoncé. You can start with $10 (and no, you don’t have to manage a single thing)
Bethan Moorcraft is a reporter for Moneywise with experience in news editing and business reporting across international markets.
