Lease gap insurance, also known as loan gap coverage, is an endorsement to your commercial auto insurance that covers the total loss of a leased or financed vehicle.
Gap insurance is optional coverage you can add to your commercial auto insurance policy. It offers financial protection in case a vehicle you still owe money on is stolen or damaged beyond repair.
A gap insurance policy covers the difference between the depreciation value of your vehicle (what your car insurance pays you) and what you owe on your lease agreement or loan balance if your car is wrecked or stolen.
Imagine the financial hit you would face if someone stole your business vehicle that had an outstanding loan of $50,000 and your car’s actual cash value (also known as the depreciated value) was $40,000. You would be responsible for paying off the $10,000 difference on the loan, as well as your deductible.
With gap insurance, your auto insurance company would cover the difference and you would only have to pay the deductible.
It works the same way with lease gap coverage. If your leased car was wrecked or stolen, your insurance provider would cover the remaining lease payments.
Insurance gap coverage, which is also referred to as auto loan coverage, is only available for new vehicles and must be purchased by the vehicle’s loan holder or leaseholder. It is typically acquired as an add-on to your comprehensive coverage or collision coverage, so you would also need one or both policies in order to get this coverage.
Collision insurance coverage is typically required for vehicles with auto leases and loans. It insures a vehicle against damage from an accidental collision with other vehicles and objects.
Comprehensive auto insurance is an optional coverage that insures against theft, vandalism, floods, deer collisions, and falling tree limbs.
Even if your car insurance policy includes collision and comprehensive coverage for the full value of your car, your reimbursement check from the insurance company would still deduct for the depreciated value of the vehicle.
Commercial auto insurance covers all the vehicles your business owns. It’s similar to personal auto insurance in that it covers your vehicles for specific risks.
Gap insurance is a policy option you can add to your car insurance coverage for newer vehicles that you lease or finance through a loan. Think of it as insurance coverage for the difference between your vehicle’s actual cash value (ACV) and what you still owe your lender or leasing agency.
Gap insurance is often required to obtain a car loan or lease. Even when it’s not required, it is still worth considering adding to your policy the next time you buy or lease a new vehicle. Imagine the financial impact if you had to repair or replace a stolen or damaged car that still had an expensive loan or lease to pay off.
The Insurance Information Institute reports that a new car loses 15 to 20 percent of its value just by driving off the car dealership lot – including your newly purchased or leased vehicle.
That’s why the Institute says gap insurance should be considered for a new car or truck if the buyer: