Should I buy gap insurance for a leased vehicle?

Leasing companies will offer GAP Insurance to help you. Gap insurance may be helpful if you have a significant amount to pay back on your lease.

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Mathew B. Sims is Editor-in-Chief and has authored, edited, and contributed to several books. He has been working in the insurance industry ensuring content is accurate for consumers who are searching for the best policies and rates...

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Dan Walker graduated with a BS in Administrative Management in 2005 and has been working in his family’s insurance agency, FCI Agency, for 15 years (BBB A+). He is licensed as an agent to write property and casualty insurance...

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Reviewed byDaniel Walker
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UPDATED: Apr 22, 2020

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Here's what you need to know...
  • GAP insurance covers the difference between the actual value determined when a car is a total loss and the amount still owed on the vehicle
  • Not having GAP coverage could put serious strain on your finance after a serious accident
  • GAP coverage doesn’t cover everything — including wear and tear that occurred before the accident


You never want to find yourself in an accident with a car that is a total loss and having to pay the difference between what the adjuster estimates your car’s value is and what you still owe on the bank.

Outside of the stress of the accident, this scenario will also put stress on your wallet.

Guaranteed Auto Protection (GAP) insurance covers the difference between the actual value determined when a car is a total loss and the amount still owed on the vehicle. This kind of coverage will alleviate undue stress in the event of a total loss.

Start comparison shopping today to make sure you have the right coverage at the right price. Enter your zip code in our FREE tool above to get started!

Scenarios Where GAP Insurance Could Be Beneficial

GAP Insurance is beneficial in several scenarios and should be considered if you have a large amount owed on your vehicle, and you don’t have money saved in case of a major accident.

Leased Vehicles

Since the end value of the vehicle is set at the time of a lease, the risk of the value of the vehicle toward the end of the lease according to the insurance company is a viable possibility.

The owner of the policy can end up owing money rather than being compensated adequately.

Financed for Sixty Months or More

Since the payments on a longer loan are less, the equity accrued during the loan is less than on one paid off more quickly.

This can lead to a change in the contrast between the value of the vehicle and the equity owned in the vehicle.

Financed with Less Than 20 Percent Down

If the automobile is financed with less than 20 percent down, it is also possible to be upside down on the value of the vehicle as compared to the payout on a claim.

The same thing will happen if negative equity is carried into the loan from a previous car loan or a lease.

Lease Agreement Complications

The automobile is driven more than 15,000 miles annually, or more than is contemplated in the lease agreement.

Negative balances carried over from a previous lease agreement can affect the value of the vehicle for insurance purposes, allowing the owner to be indebted to the lease company.

 High Depreciation Rates

Sports cars and other types of vehicles that depreciate quickly due to their make and model can cause the ratio of cost of the vehicle in comparison to its value to vary greatly.

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Example of a Problem that May Occur Without GAP Insurance

It helps to understand the problem that can be created by not purchasing GAP Insurance with an illustration.

You purchase a vehicle at six percent interest on a five-year loan. After a year, the loan balance is $20,580.

If the vehicle is totaled and the insurance valuation is $19,000, our insurance provider will subtract the $500 deductible, leaving you with a check for $18,500.

What GAP Insurance Does Not Cover

As part of the settlement when a vehicle is totaled, the following issues are not covered:

  • Overdue lease or loan payments
  • Excessive use penalties under a lease
  • Security deposits not refunded
  • Amounts deducted by the primary insurer for wear and tear, prior damage, towing, and storage
  • The carryover balance from previous loans or leases
  • Equipment added by the buyer

Insurance is not intended to reimburse clients for oversights on their parts, so overdue lease and loan payments are not included in the coverage.

Furthermore, mileage is limited under a lease, so the amount charged for excess mileage is not a part of the settlement.

Any security deposit to be returned must be received from the leasing company; therefore, the security deposit becomes an issue between the leasing company and the signature on the lease.

Any wear and tear as well as prior damage, towing, and storage that are not covered by the primary insurer will not be covered by GAP Insurance, neither will equipment added by the buyer.

Purchasing GAP Insurance

Leasing companies and car dealerships will offer GAP Insurance to help you.

Since GAP Insurance is not regulated ordinarily by the insurance industry, they can legally offer this type of coverage.

It is not a good idea to purchase this coverage from anyone but your local insurance agent because the cost may be inflated through the leasing company or car dealership.

Check the premium and coverage when you are offered GAP Insurance.

Many complaints about insurance companies result from the misunderstandings that result from buyers who do not understand the complete ramifications of their insurance.

Never be under covered. Start comparison shopping today by entering your zip code into our FREE tool below!

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