Why do you need GAP insurance for a leased car?
GAP insurance for a leased car pays the difference between what you owe on your car and what it's worth. GAP insurance rates for leased cars are often $500-$1000.
Free Car Insurance Comparison
Compare Quotes From Top Companies and Save
Secured with SHA-256 Encryption
Justin Wright
Licensed Insurance Agent
Justin Wright has been a licensed insurance broker for over 9 years. After graduating from Southeastern Seminary with a Masters in Philosophy, Justin started his career as a professor, teaching Philosophy and Ethics. Later, Justin obtained both his Property & Casualty license and his Life and Health license and began working for State Farm and Allstate. In 2020, Justin began working as an i...
Licensed Insurance Agent
UPDATED: Apr 15, 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.
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: Apr 15, 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
- Gap, or “guaranteed auto protection,” insurance pays the difference between what you owe on your car and what it’s worth
- Gap insurance coverage is designed to bridge the gap between the outstanding loan and the cash value of the vehicle
- Shopping around for gap insurance before you buy or lease your next car will help you get the best pricing on your coverage
- On average GAP insurance is $500-1000.
You need gap insurance for a leased carbecause drivers of leased vehicles often owe more money that the auto is worth. Gap, or “guaranteed auto protection,” insurance pays the difference between what you owe on your car and what it’s worth.
This is coverage you should have in place if you have decided to lease a vehicle.
To compare gap insurance quotes along with regular auto insurance quotes online just enter your zip code above. You can be off and running with your free car insurance quote comparison in no time at all!
How a car lease works
How much insurance do you need on a leased car? Leasing a vehicle is like renting it. You sign up for a set term, which may be three years in length.
The dealer calculates how much the car will be worth at the end of the lease term, and you make payments based on that value instead of its total cost.
Financing for a leased vehicle is calculated based on the difference between its capitalized cost (or original price) and the residual cost at the end of the lease term.
For example, if you leased a car that was worth $20,000 at the beginning of the term and would be worth $12,000 at the end of the term, you would be making payments on $8,000 (the difference between $20,000 and $12,000) instead of the full $20,000 if you had decided to buy the car outright.
You can choose to buy the car when your lease expires and arrange financing for the remaining $12,000 in value then.
There are other options available to you when your lease expires as well:
- you can sell the car yourself and hopefully get more for it than the remaining value
- you can trade it in on another vehicle that you would lease
The final option at the end of the lease term is to return the car to the dealer and walk away.
Read more: Compare Car Insurance for Leased Cars: Rates, Discounts, & Requirements
Free Car Insurance Comparison
Enter your ZIP code below to view companies that have cheap car insurance rates.
Secured with SHA-256 Encryption
How gap insurance works
How does gap insurance work on a leased vehicle? Can you buy gap insurance at any time? If you are in an accident that is serious enough to total the car or the car is stolen, your insurance company is not going to write you a check for what the car was worth before you took it off the dealer’s lot.
Instead, you will be compensated for the amount of the cash value of the vehicle only. Let’s look at the $20,000 car you leased in the example above. If it was stolen or you totaled it a year into the lease term, you may still owe the dealer a significant amount of money on the lease.
If you find out after the incident that the cash value is lower than the amount you owe, you are still responsible for the difference. This situation is called being “upside down” on the loan. You owe more on the asset than it is currently worth.
Gap insurance coverage is designed to bridge the gap between the outstanding loan and the cash value of the vehicle.
Types of gap coverage
How do you know if you have gap insurance on your lease? Not all car insurance companies include gap insurance in a standard auto insurance policy, but it’s a good idea to find out whether you already have coverage in place before you spend money on another insurance policy.
Some insurers will sell you a gap policy as a separate insurance product. Your insurance company may be able to add the gap coverage to your existing policy as a rider, which may be a less expensive option than to apply for a separate policy to provide this protection.
The dealership may offer this coverage to you through an arrangement it has with an insurer.
If you are told that you must buy gap insurance when you arrange your lease, you are being given false information.
You can buygap insuranceat any time during the lease period if you choose to do so.
While buying coverage when you sign your lease papers may be the most convenient way to get the protection you need, it may not be the most economical way to go.
Shopping around for gap insurance before you buy or lease your next car will help you get the best pricing on your coverage.
You will also want to find a gap policy that will pay for your main insurance policy’s deductible if your car is totaled in an accident or stolen.
If you want to explore your options for gap insurance pricing when you lease a vehicle, click on the free insurance comparison tool at the bottom of the page.
Frequently Asked Questions
Why do I need GAP insurance for a leased car?
GAP insurance for a leased car is necessary because it covers the difference between what you owe on your car and its actual cash value. In the event of an accident or theft, your insurance company will only compensate you for the cash value of the vehicle, which may be less than what you owe on your lease. GAP insurance ensures that you are not left with a financial burden in such situations.
How does GAP insurance work on a leased vehicle?
If your leased car is totaled or stolen, your insurance company will only reimburse you for the cash value of the vehicle. If this amount is lower than what you owe on your lease, you will be responsible for the difference. GAP insurance bridges this gap by covering the outstanding loan amount, ensuring that you are not financially liable for the difference.
Can I buy GAP insurance at any time during the lease period?
Yes, you can purchase GAP insurance at any time during the lease period. While it may be more convenient to buy it when you sign your lease, it’s advisable to shop around and compare prices to ensure you get the best coverage at the most affordable rate. You can also check with your insurance company if they offer GAP coverage as a rider to your existing policy.
How much insurance do I need on a leased car?
When leasing a vehicle, the amount of insurance you need will typically be determined by the leasing company. They may require you to have comprehensive and collision coverage with specific coverage limits. It’s important to review the lease agreement and consult with your insurance provider to ensure you meet the required insurance standards.
Are all car insurance policies inclusive of GAP insurance for leased cars?
No, not all car insurance policies include GAP insurance for leased cars. It’s essential to check with your insurance company to determine if your policy already includes GAP coverage. If not, you have the option to purchase it as a separate insurance product or explore adding it as a rider to your existing policy. Additionally, some dealerships may offer GAP coverage through their arrangement with an insurer.
Free Car Insurance Comparison
Enter your ZIP code below to view companies that have cheap car insurance rates.
Secured with SHA-256 Encryption
Justin Wright
Licensed Insurance Agent
Justin Wright has been a licensed insurance broker for over 9 years. After graduating from Southeastern Seminary with a Masters in Philosophy, Justin started his career as a professor, teaching Philosophy and Ethics. Later, Justin obtained both his Property & Casualty license and his Life and Health license and began working for State Farm and Allstate. In 2020, Justin began working as an i...
Licensed Insurance Agent
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.