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What is Gap Insurance?
If you’ve leased a vehicle in the past, are signing the paperwork to lease right now, or are dealing with the aftermath of getting into an accident in a leased vehicle, the term gap insurance may have come up on your radar.
To help our local lessees in Eagle Rock, Los Angeles, Pasadena and Glendale better understand gap insurance, CarTek Collision created the following post. Keep reading to learn more.
Understanding the Gap in Gap Insurance
The best way to define gap insurance is to understand what it’s named after, and that requires doing a little bit of math. Hang with us.
Let’s say you get into a serious accident in your leased SUV and file a collision claim. You find out that the damages incurred amount to more than what your SUV is worth (consider it totaled).
In the case of a totaled or stolen lease, your insurance company is responsible for paying the actual cash value of the vehicle. Let’s say that’s $20,000. So, you pay your $500 deductible, and your insurance pays the remaining $19,500.
But, unfortunately, you were somewhere in the first few months of your lease, and you still owed $24,000 in payment. You’re now left with a gap amount of $4,500 left hanging in the balance.
Why Gap Insurance Is Important
With gap insurance, this $4,500 will be able to be paid in full. Without it, you’re stuck paying out of pocket for a car you don’t drive anymore, on top of most likely having to shell out more money to get another vehicle very soon.
Gap insurance was created to protect lessees from this kind of financial burden that’s most likely to occur during the early months of an agreement, when the cost of the loan exceeds the cash value of the vehicle.
Do I Need Gap Insurance?
Many leasing companies encourage their lessees to buy gap insurance, and in many cases, it may already be a part of your lease agreement terms. If you’ve been in an accident in a leased vehicle, revisit your terms to see if gap coverage is included; it may also go by a more generic name like lease coverage.
In general, unless you have a significant amount of money saved up that you’d be able to spend on a multi-thousand dollar “gap emergency,” getting gap insurance when signing on for a new lease is a good idea.
Where to Buy Gap Insurance
Gap insurance can be purchased through your dealership, bank or credit union, or from a private gap insurance provider.
Checking rates from all parties will allow you to make the most affordable choice for the coverage you’ll need. On average, gap coverage should cost around 5% or 6% of your collision and comprehension coverage costs, a small addition to your monthly premiums that can really help you out in the long run, should you need it.