How do I find out if GAP insurance is included in my car lease?
GAP insurance on a leased car provides financial protection when a car is leased or financed. Leased car GAP insurance covers the difference between what a car is worth versus what you still owe on it if it is stolen or declared a total loss after an accident.
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Dani Best
Licensed Insurance Producer
Dani Best has been a licensed insurance producer for nearly 10 years. Dani began her insurance career in a sales role with State Farm in 2014. During her time in sales, she graduated with her Bachelors in Psychology from Capella University and is currently earning her Masters in Marriage and Family Therapy. Since 2014, Dani has held and maintains licenses in Life, Disability, Property, and Casualt...
Licensed Insurance Producer
UPDATED: Nov 24, 2024
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Editorial Guidelines: We are a free online resource for anyone interested in learning more about auto insurance. Our goal is to be an objective, third-party resource for everything auto insurance related. We update our site regularly, and all content is reviewed by auto insurance experts.
UPDATED: Nov 24, 2024
It’s all about you. We want to help you make the right coverage choices.
Advertiser Disclosure: We strive to help you make confident car insurance decisions. Comparison shopping should be easy. We are not affiliated with any one car insurance company and cannot guarantee quotes from any single company.
Our partnerships don’t influence our content. Our opinions are our own. To compare quotes from top car companies please enter your ZIP code above to use the free quote tool. The more quotes you compare, the more chances to save.
On This Page
- Because new cars depreciate quickly, GAP insurance coverage is often required by lenders and lessors
- GAP insurance protects you from the costs difference between what is owed on your vehicle and the market value of your vehicle
- Even if GAP insurance coverage is not required, you may wish to purchase it for your own peace of mind and protection
GAP insurance is oftentimes required when financing or leasing a car. However, just because GAP insurance is required does not mean it is automatically included in your lease. To find out if GAP insurance is included in your car lease, you need to read the lease carefully and ask the lessor if GAP insurance for a car lease is required and if so how it is to be handled.
If the leasing company does not require GAP insurance, you may want to consider buying it anyway. Even if you are not the owner of the car, you are financially responsible for it per your lease agreement. Not having this coverage can leave you financially unprotected if your car is totaled or stolen.
Read on to learn all about GAP insurance on a leased car. Find out how GAP insurance works after totaling a car.
Understanding GAP Insurance
GAP insurance is necessary for new cars because of their quick depreciation. If you borrow money for a new car and make loan payment arrangements for a 48-month loan term, chances are that near the beginning of your loan, you will owe more for your car than the car’s current market value.
If you plan on keeping your car for several years after it is paid off, then the depreciation does not matter as much. However, if your depreciated car becomes totaled in an accident or gets stolen and is declared unrecoverable while you still owe money on it, you are looking at negative equity and potentially steep out-of-pocket costs for a replacement vehicle.
Your car insurance will most likely only cover the car’s market value, leaving you to cover the outstanding balance due on your car loan. Sometimes this number could be as high as $5,000.
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How GAP Insurance Works for Leased Cars
Why do you need GAP insurance for a leased car? The same situation applies to GAP insurance for leased vehicles. The majority of individuals lease new cars, and lease terms typically span one to three years. Within this period, the car undergoes depreciation similar to other vehicles of the same make and model, irrespective of whether it is owned, financed, or leased.
The difference with leased cars is that once the lease is over, the car gets returned and usually, another new vehicle gets leased in its place. However, if during your lease period that car is in an accident and suffers a total loss or gets stolen and not recovered, then you may be liable for paying the difference between the market value and the retail value of the car.
Read more:
GAP Insurance for a Lease
Even though you are not the owner of the car, you are responsible for paying off the lease as agreed, which means you may be paying for a car you no longer drive.
GAP insurance is financial protection for instances when a car is leased or financed and there is a good chance of negative equity in the first few years of the vehicle’s life.
This is not common for older cars that have already depreciated significantly and the market value is close to the owed value. However, this applies to every new car that is financed or leased because the car will experience major depreciation during the loan or lease term.
In order to close the GAP (pay the difference) between what you owe your lessor and what your insurance company will pay you, you need to have GAP insurance for lease cars in place.
Is GAP insurance for a leased car only?
There may be a misconception that only individuals with car leases can avail themselves of GAP insurance. While GAP insurance is indeed more prevalent among those with leased vehicles, it can also be beneficial for other buyers. If a car owner finds themselves owing more on their vehicle than its current market value—a situation referred to as being upside-down—considering GAP insurance is advisable. Additionally, it’s worth exploring why leased vehicles tend to have higher car insurance costs.
Usually, owners that are upside-down on a car made a low down payment or have a very high-interest rate on their car loan. If someone buys a car and pays a large down payment and has a car loan with a low-interest rate they will probably have no need for GAP insurance on a lease.
Many sellers require GAP coverage to lease a vehicle. The reason this type of coverage is a must for someone leasing a car is that they are the ones responsible for the costs if the car is totaled or stolen, even though they do not own it.
Lease payments are also a lot lower than most loan payments so the amount the person has paid for the car is much less, which makes the difference between what has been paid and how much the car is worth larger. Since the difference is what the driver would be expected to pay himself, GAP insurance only makes sense.
GAP Insurance by Any Other Name
GAP insurance does not actually mean insurance that closes the gap; rather it stands for Guaranteed Asset Protection. GAP insurance basically guarantees you total coverage for your asset, in this case, your car, whether it is financed or leased.
Although GAP is usually called GAP or GAP insurance, it is also known as:
- Auto Loan Lease Coverage
- Loan or Lease GAP Coverage
- New Vehicle Protection
Whatever the policy is called, be sure you understand what benefit you will receive in the event of a claim. GAP is intended to provide full coverage to minimize the loss between the actual value and retail value of the car, so if you are not getting this protection then you are not fully covered.
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Getting GAP Insurance Quotes
Read your lease policy thoroughly to see if it includes GAP. Be sure to check for different verbiage as well in case the policy refers to it as something else. You need GAP, but you don’t need to pay for it twice. If you have any questions, be sure to have them answered before signing the lease policy.
If GAP coverage is not addressed, find out if you are responsible for carrying it. If you are, then you need to shop for GAP insurance quotes. If you are not required to have it, then you may want to shop for quotes anyway. The cost of GAP insurance and financial peace of mind may be worth the cost of having full coverage.
You can request GAP quotes from the best insurance companies and by shopping around for different rates you can get the best deal. Follow the on-screen prompts on this website and start comparing quotes today.
Case Studies: Understanding the Importance of GAP Insurance in Car Leases
Case Study 1: Sarah’s Stolen Car
Sarah recently leased a brand-new car and opted not to purchase GAP insurance. Unfortunately, just a few months into her lease, her car was stolen.
Despite having comprehensive car insurance, Sarah’s policy only covered the current market value of the vehicle, which was significantly lower than the remaining balance on her lease. As a result, Sarah had to pay out of pocket to settle the outstanding lease balance, leaving her in a financial bind.
Case Study 2: Mark’s Total Loss Accident
Mark leased a new car and decided to include GAP insurance as part of his lease agreement. Several months later, he was involved in a severe accident that resulted in a total loss of the vehicle.
Thanks to his GAP insurance coverage, Mark was protected from the negative equity that would have otherwise occurred. The insurance covered the difference between the market value of the car and the remaining balance on his lease, alleviating him of any financial burden.
Case Study 3: Lisa’s Unrecovered Stolen Car
Lisa leased a car and had GAP insurance as part of her lease agreement. Unfortunately, her car was stolen and never recovered. The insurance company declared it a total loss.
Thanks to her GAP insurance coverage, Lisa was relieved of the responsibility to pay the difference between the car’s market value and the remaining lease balance. This enabled her to smoothly transition to a new lease without any financial setbacks.
Read more: Does GAP insurance cover stolen cars?
Frequently Asked Questions
How do I find out if GAP insurance is included in my car lease?
To determine if GAP insurance is included in your car lease, you should carefully review your lease agreement. Look for any mention of GAP insurance or similar coverage. If you’re unsure, contact the leasing company directly and ask them to clarify whether GAP insurance is included in your lease.
What is GAP insurance and why is it necessary for leased cars?
GAP insurance, also known as Guaranteed Asset Protection insurance, provides financial protection in the event of a total loss or theft of a leased or financed car. It covers the difference between the car’s value and the remaining balance on the lease or loan. It is necessary for leased cars because they tend to depreciate quickly, and in the event of a total loss, the insurance payout may not be enough to cover the remaining lease balance.
Is GAP insurance only for leased cars?
No, GAP insurance is not only for leased cars. While it is more common for leased cars, it can also be beneficial for other car owners. If you owe more on your car loan than the car is worth (commonly known as being “upside-down” on the loan), whether you have a lease or loan, GAP insurance can provide valuable coverage.
What are some other names for GAP insurance?
GAP insurance is also referred to as Guaranteed Auto Protection, Loan/Lease Gap Coverage, or Auto Loan/Lease Coverage. These terms all refer to the same type of coverage that protects against the financial gap between the car’s value and the amount owed on the lease or loan.
How can I obtain GAP insurance for my leased car?
First, review your lease agreement to see if GAP insurance is required or offered by the leasing company. If it is not included, you can shop for GAP insurance quotes from various insurance companies. Comparing quotes will help you find the best coverage and price. Start by entering your ZIP code on this website and follow the prompts to request GAP insurance quotes from reputable insurers.
Free Car Insurance Comparison
Enter your ZIP code below to view companies that have cheap car insurance rates.
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Dani Best
Licensed Insurance Producer
Dani Best has been a licensed insurance producer for nearly 10 years. Dani began her insurance career in a sales role with State Farm in 2014. During her time in sales, she graduated with her Bachelors in Psychology from Capella University and is currently earning her Masters in Marriage and Family Therapy. Since 2014, Dani has held and maintains licenses in Life, Disability, Property, and Casualt...
Licensed Insurance Producer
Editorial Guidelines: We are a free online resource for anyone interested in learning more about auto insurance. Our goal is to be an objective, third-party resource for everything auto insurance related. We update our site regularly, and all content is reviewed by auto insurance experts.