Gap Insurance On a Car Lease

Imagine the following scenario:

You’ve just leased a new vehicle for $0 down, called the insurance company to let them know, and made your way off the lot.

You’re riding high, but just minutes later, you get t-boned and your car is totaled.

Fortunately, no one is injured, but your sparkly new car is beyond repair.

After things cool down, you think to yourself, “Hey, everything will be fine, I’ve got full coverage!”

Well, days after filing an insurance claim, an appraiser comes up with the actual cash value of your vehicle for settlement.

You’re given a check for $25,000, but realize the outstanding payoff on your car lease is $28,000, close to the value of the car brand new.

Why the discrepancy you may ask?

Well, the minute you drive your car off the lot, it loses a fair amount of value. And because you put zero down and your car is still brand new, the associated lease payoff is still close to the value of the car new.

As a result, there’s a gap between your outstanding lease and the current value of the car, as determined by the insurance company.

And guess who’s footing the bill? You. Unless of course, you opted for gap insurance.

Gap insurance will cover the difference between the actual cash value of the vehicle and the outstanding lease amount – it may even cover your auto insurance deductible as well in the event of a physical damage claim.

All for just about $10 extra for a six-month car insurance policy. Not bad, right?

Just keep in mind that gap insurance varies amongst car insurance companies, and may only cover a portion of the difference, such as a percentage.

So be sure to contact your car insurance company or independent insurance agent when leasing a new car to ensure you’re covered against such a scenario.

Tip: The same problem can arise if you take out a car loan, so always be sure to at least consider some form of gap insurance.