Even if you have fully paid for the amount in a lease contract of your vehicle, when an accident happens and the car becomes beyond repair, you are still responsible in replacing the unit. It is true that an insurance provider will pay for it, but not the entire amount. It will only pay for its depreciated value while the leasing company will hold you accountable for the amount still owed from a dealership. The same goes true for loaned vehicles. You will find that you need to shoulder the difference in amount because your insurer will only pay up to the amount of the current market and depreciated value. This is where gap insurance becomes an essential coverage.
It goes without saying that gap insurance is a must for leased cars as well as for cars with mortgage not yet fully paid. It will take care of unexpected and unnecessary expenses when an accident happens. As its name implies, gap insurance takes care of the difference between actual value and depreciated value of a vehicle. When you are covered by this policy, you need not think about how you are going to pay off the losses that go along with time. For instance, you buy a car for $30,000 inclusive of interest, taxes and license fees. In a span of two months, a car’s value would depreciate by 20% so the fair market value is now just $24,000. Your insurer will only cover up to $24,000. In case the auto becomes irreparable, your dealer will still continue to collect monthly amortization to complete the $30,000. Notice that there is a difference of $6,000 and gap insurance will pay that off.
Here are a few things to consider when buying this coverage:
- This is usually purchased during the time a lease contract is initiated, but some offer it anytime during the term of lease.
- Terms of the lease must be complied with at all times.
- Collision and comprehensive policies are required for this coverage to be honored. These two policies are actually required by leasing companies.
When unforeseen damage or theft happens, just make sure that you follow the requirements made by your auto insurer. In most cases, you are required to continue your monthly payments until settlement of gap policy is finished. It is always okay to ask your agent about this policy, because really, it is something you will be thankful for in case you need it. A few hundred dollars more that is spent on this policy will spare you from lawsuits.