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Do I need GAP or Lease Gap insurance?

GAP insurance, or Loan/Lease Gap Insurance, is an optional auto insurance coverage available for people who either finance or lease their car. If the car is totaled in an accident, GAP insurance coverage pays the difference between the insurance company’s actual cash value payment and the loan or lease amount left on the vehicle. This is an important coverage in today’s marketplace where financing companies are offering their customers longer term loans with lower down payments.


This generally is not a problem if you make timely loan or lease payments and the car isn’t destroyed in an accident or stolen. However, if your car is in an accident, here’s how your insurance company would normally respond to a total loss. If you have physical damage coverage on your policy, your company will pay for the actual cash value of your car. You can use the money the insurance company settles with you to purchase another car of like kind and value or put it toward the purchase of a newer or better car.


Under most circumstances, the insurance settlement is enough to pay off any loans you may have on the car or satisfy the leasing company. However, a problem can crop up when you owe more to the bank or leasing company than the car is worth. That is the “gap” that GAP Insurance is designed to pay for. And the gap can amount to thousands of dollars.


You may owe more than the car is worth at any given time if you purchase the car with a low down payment, you overpay for the vehicle, you trade in a vehicle with a negative loan balance, or you have an overly long loan repayment plan, say 48 months or more. This is quite common today with financing companies offering car loans with low down payments and longer terms to repay.


Imagine making payments for a car you no longer own because it has been stolen or destroyed in an accident, and then having to go out and buy another car. This is why people who want to cover this costly situation may consider purchasing Loan/Lease Gap Insurance.


Your Leased Vehicle May Already Be Covered

Many leasing companies offer the coverage automatically. It may be free from the leasing company or come with an extra charge. It will usually be described in the leasing contract as a “waiver,” not as insurance. The contract will say that if the car is either totaled in an accident or stolen, the lease is

terminated with the lessee not responsible for any further costs. If you lease a car, be sure to ask your leasing company about the GAP waiver.


GAP Insurance doesn’t, however, come automatically with your auto insurance loan, though it is available in most states from your local independent insurance agent. In fact, your agent can probably provide you with GAP Insurance at a much lower price than your car dealer can. That’s because an independent agent represents more than one company, and keeps up with the companies offering the best policies.


Call your agent for a quote if you think you may have a “gap” in your physical damage coverage so you won’t be sorry later.



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