Gap insurance is oftentimes required when financing or leasing a car. However, just because gap insurance is required does not mean it is automatically included in your lease. To find out if gap insurance is included in your car lease, you need to read the lease carefully and ask the Lessor if gap insurance is required and if so how it is to be handled.
If the Lessor does not require gap insurance, you may want to consider buying it anyway. Even if you are not the owner of the car, you are financially responsible for it per your lease agreement. Not having this coverage can leave you financially unprotected if your car is totaled or stolen.
Read on to learn all about gap auto insurance policies and car leases and then use the free tool above to do a full car insurance quote comparison!
Understanding Gap Insurance
Gap insurance is necessary for new cars because of their quick depreciation. If you borrow money for a new car and make payment arrangements for a 48 month term, chances are that by the time the fourth year rolls around you will still owe more for your car than the car’s current market value. If you plan on keeping your car for several more years after it is paid off, then the depreciation does not matter as much. However, if your depreciated car becomes totaled in an accident or gets stolen and is declared unrecoverable while you still owe money on it, you are looking at negative equity and potentially steep out of pocket costs.
Your car insurance will most likely only cover the car’s market value, leaving you to cover the remaining balance due on your car loan. Sometimes this number could be as high as $5,000. If you need to keep making payments for a car you don’t have, it will ultimately cost you more by the time it is paid off with interest.
A similar scenario holds true for leased vehicles. Most people only lease new cars and a lease term typically ranges from one to three years. During that time frame, the car will suffer the same type of depreciation as other similar makes and models, regardless if it is owned, financed, or leased.
The difference with leased cars is that once the lease is over, the car gets returned and usually another new vehicle gets leased in its place. However, if during your lease period that car is in an accident and suffers a total loss or gets stolen and not recovered, then you may be liable for paying the difference between the market value and the retail value of the car. Even though you are not the owner of the car, you are responsible for paying off the lease as agreed, which means you may be paying for a car you no longer drive.
Gap insurance is financial protection for instances when a car is leased or financed and there is a good chance of negative equity in the first few years of the vehicle’s life. This is not common for older cars that have already depreciated significantly and the market value is close to the retail value. However, this applies to every new car that is financed or leased because the car will experience major depreciation during the loan or lease term. In order to close the gap (pay the difference) between what you owe your Lessor and what your insurance company will pay you, you need to have gap insurance in place.
Gap Insurance by Any Other Name
Gap insurance does not actually mean insurance that closes the gap; rather it stands for Guaranteed Asset Protection. GAP insurance basically guarantees you total coverage for your asset, in this case your car, whether it is financed or leased.
Although GAP is usually called GAP or gap insurance, it is also known as Auto Loan Lease Coverage, Loan or Lease GAP Coverage, or New Vehicle Protection. Whatever the policy is called, be sure you understand what benefit you will receive in the event of a claim.
GAP is intended to provide full coverage to minimize the loss between the actual value and retail value of the car, so if you are not getting this protection then you are not fully covered.
Getting Gap Insurance Quotes
Read your lease policy thoroughly to see if it includes GAP. Be sure to check for different verbiage as well in case the policy refers to it as something else. You need GAP, but you don’t need to pay for it twice. If you have any questions, be sure to have them answered before signing the lease policy.
If GAP is not addressed, find out if you are responsible for carrying it. If you are, then you need to shop for gap insurance quotes. If you are not required to have it, then you may want to shop for quotes anyway. Financial peace of mind may be worth the cost of having full coverage.
You can request gap quotes from a variety of insurance companies and by shopping around for different rates you can get the best deal. Follow the on screen prompts on this website and start comparing quotes today!
