Auto Lease and Loan Gap Coverage
Whether you leased or bought it, a brand new car is something to celebrate! At American Family Insurance, we want you to hit the road with peace of mind knowing you’ve got just the right coverage to protect your set of wheels. Our auto lease/loan assistance gap coverage is a great way to safeguard your car for the road ahead.
What is Lease/Loan Gap Coverage?
Auto leases and loans often run 60 months or longer, and when you add to that the rapid depreciation of a vehicle’s value — usually 11 percent the minute it leaves the lot — people can quickly find themselves owing more on leases or loans than the vehicle is worth.
If you are leasing your vehicle or have a vehicle loan, the lease/loan assistance gap endorsement is probably a good fit for you. Here’s why: if you’re in an accident and your vehicle is a total loss, your auto policy will generally pay you for the actual cash value of your vehicle. Great! However, the value of the vehicle can be less than what you might actually owe, leaving you with a potentially hefty bill. Lease/loan gap coverage helps pays the difference, or the gap, to help lessen the financial load on your end.
What Does Lease/Loan Gap Insurance Cover?
Let’s say you get a vehicle loan for your car’s full value of $18,000. Later, you’re involved in an accident where your coverage applies and the vehicle is considered a total loss. The actual cash value of the vehicle is $14,000 — which is what your insurance company will typically pay — but, because of the structure of your loan repayment, you still owe $17,000. This leaves you with a $3,000 bill for a vehicle you no longer have. If you have the lease/loan assistance gap endorsement, that $3,000 gap is covered, instead of it all coming out of your pocket.
How Car Value Plays a Role in Lease/Loan Gap Insurance
Have you heard of being “upside down” on car loan payments? This is when you owe more on your car than the car is actually worth. Being upside down is a prime time to have lease/loan gap coverage, because in the event of a total loss — as we mentioned before — your auto policy will only pay up to what your car is worth. Once you owe your lender less than what your car is worth, you can remove the lease/loan assistance gap coverage from your policy.
How Much is Lease/Loan Gap Insurance?
Adding this coverage to your policy adds only a few more dollars to your monthly or biannual payment — but it could save you a lot of money in the long run. Your insurance agent can tell you just how this coverage will affect your premium, and they can help you better understand the right time to remove it.
Keep in mind, some car dealerships offer this coverage at the time of sale, but you can actually purchase it any time from American Family Insurance.
Is Lease/Loan Gap Insurance Enough?
Insurance companies actually won’t even offer this coverage unless you have comprehensive and collision coverage, which is what would help cover the cash value of the car.
Another important detail about this endorsement is that the loan must be a vehicle loan and be taken out only to purchase the vehicle. So, if you use a home equity loan to purchase a vehicle, this coverage would not be available. Additionally, this endorsement doesn’t pay for items such as extended warranties, credit life insurance, loan rollover balances or late payment penalties and fees.
How to Find out If You Have Gap Insurance
Are you unsure if you already have gap insurance? Take a look at your car insurance policy or contact your agent to see if it’s included in your policy – if it’s not, now is a great time to add it! It’s also important to note that if you lease a vehicle, your dealership probably requires you to have this coverage and they might already include the coverage in your lease payment. Before you add it to your insurance policy, give your dealership a call and check with them. If your dealership does offer gap insurance but doesn’t require you to have it through them, consider purchasing the coverage through your insurance provider instead, since it’ll probably be less expensive.
Having auto lease/loan assistance gap coverage is just one more way to proactively protect what matters most. Give a call to your American Family Insurance agent about adding this coverage to your auto insurance policy — you’ll be happy you did.