Gap, also called auto loan or lease assistance coverage, is an optional auto coverage that helps pay the difference (or the “gap”) between the amount of money you owe on your vehicle and the total cost to replace it with a new vehicle. Here in Glenwood Springs, long vehicle loan and lease terms and depreciation can often leave people owing more on their loan or lease than the vehicle is worth.
What does lease/loan gap cover?
After an accident, the insurance company will calculate the actual cash value (ACV) of your vehicle, which is based on the cost new of the vehicle less depreciation. Let’s imagine that you purchase a new truck for $35,000 and you have a loan or lease on the vehicle. Just a few short months after you purchase the new vehicle, you are involved in an auto accident that results in a covered total loss. The insurance company determines that the ACV for your vehicles is $30,000 but due to the terms of your loan, you still owe $34,000 on your vehicle. This would leave you with a $4,000 dollar gap in your coverage and a $4,000 bill for a vehicle that you no longer have. If you have gap coverage, the $4,000 is covered by your insurance policy and doesn’t have to come directly out of your pocket.
Is lease/loan gap coverage required?
This coverage is usually optional but it may be required by your lender, especially if you have a lease on the vehicle, including in Glenwood Springs and Rifle.
What isn’t covered by lease/loan gap coverage?
If you use a home equity loan or a line of revolving credit to purchase a new vehicle (versus an actual auto loan) this coverage is not available. Gap coverage also does not pay for things like late payment penalties, extended warranties or loan rollover balances.
When do I need lease/loan gap?
If you’re in the market for a new vehicle in western Colorado, gap insurance is something that you should seriously consider. A good way to determine if this coverage is right for your situation is to obtain a current bluebook value for your vehicle prior to purchasing it. Compare the bluebook value to the amount you owe on your loan and if the amount you owe is more than the bluebook value, gap insurance would be a smart decision. If you do add gap coverage to your auto policy, you can remove this coverage once you owe your lender less than what your car is worth. Keep in mind that the car dealership may offer this coverage to you when you purchase a new vehicle but that you may be able to get this coverage from your insurance agent for less than the dealership cost.