The loan or lease GAP insurance policy coverage is purely option. If a person wishes to purchase this policy coverage, he/she must be having both comprehensive coverage and collision coverage. A substantial deductible should be provided and the car should have a lien holder, since the car would either be leased or financed to the lien holder. This coverage would contribute to the difference between the under mentioned items, when the car is damaged in an accident.
- The actual cash value of the car at the time of the accident, less the appropriate deductible and the salvage value of the car, if the car is retained by the insured person or the owner.
- Any excess amount owed on the car at the time of the accident, less the unpaid financial charges, the excess mileage charges, the excess wear and tear charges, any other expenses or charges that are associated with lease or the loan, and the salvage value of the car, if the car is retained by the insured person or the owner.
The GAP insurance policy is normally offered as a separate policy. It would be cheaper to buy LLG cover with the policy. GAP insurance is highly valuable during the first few years of the life of the car, if there is a lease or a loan on the car. When the car is totaled due to accident, fire, flood, vandalism, theft, hurricane, or tornado, the insurance company would pay only the actual cash value of the car. This amount would usually be less than the actual retail value of the vehicle. Hence, it would also be lesser than the balance lease or loan amount. The gap is the amount between the insurance deductible and the loss from the above-mentioned financial shortfall. Most of the insurance companies would offer the loan or lease GAP insurance policy coverage as an additional option along with the coverage for physical damages. Hence, it is prudent to purchase the loan or lease GAP insurance policy coverage together with comprehensive and collision coverages.