Buying or leasing a car is exciting — until you realize how quickly that new vehicle starts to depreciate. That’s where loan or lease gap coverage comes in. If you’re financing or leasing your car, this coverage can be a financial lifesaver in the event your vehicle is totaled or stolen. Before you add this coverage to your auto policy, you should consider one crucial detail: your finance or lease contract may already include gap coverage.
Gap (Guaranteed Asset Protection) coverage bridges the “gap” between what your insurance company pays out if your vehicle is totaled or stolen, and what you still owe on your car loan or lease. This difference can be a lot larger than people would think, especially in the first few years of ownership.
For example, say you owe $30,000 on your loan, but your vehicle’s actual cash value at the time of an accident is only $24,000. Your insurer will pay that $24,000 (minus any deductible), but you’re still on the hook for the remaining $6,000. Without gap coverage, you’ll have to pay that out of pocket for a car you no longer even own.
Cars depreciate quickly — new vehicles can lose up to 20% of their value in the first year alone. If you put down a small down payment, opted for a longer-term loan, or are leasing your vehicle, you’re particularly vulnerable to this coverage gap.
Here’s why you might want to consider adding gap coverage to your auto insurance:
Many lenders and leasing companies include gap coverage in the loan or lease terms, sometimes called “gap waiver” or “gap protection.” It’s surprisingly common for people to unknowingly buy gap coverage twice — once through their auto policy and again through their lender. That means you could be paying extra every month for a benefit you already have.
To avoid overpaying, ask your lender or dealership these questions:
If you find out you don’t have it and your situation puts you at risk for negative equity, it’s worth the peace of mind to add it to your policy. It’s usually an inexpensive addition — often only a few dollars a month — and can save you thousands down the line.
Loan or lease gap coverage isn’t necessary for everyone, but for many people financing or leasing a vehicle, it’s a smart, low-cost way to protect yourself from financial fallout if your car is totaled or stolen. Just make sure you’re not already paying for it elsewhere. A quick review of your loan or lease contract could save you money — and ensure you’re properly covered when it matters most.
If you’re unsure, call us and your lender or lease company. When it comes to gap coverage, a little homework goes a long way toward protecting your wallet.
Having the right coverage means you’re prepared for the unexpected. Not sure if you’re fully protected? Contact us today to review your policy options!
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