Do I need gap insurance on a leased vehicle?
Gap insurance on a lease is required by some lessors (someone who lends property), acting as an extra layer of financial security when a car depreciates and is worth less than the amount owed on the vehicle. Even if your lease agreement doesn't require it, you may still consider purchasing gap insurance if you owe more than the car's actual cash value (ACV). In that case, gap insurance could help you save thousands should something happen to your car.
What is gap insurance?
Gap insurance on a leased car covers the difference between the vehicle's ACV and what you still owe on the lease. So if your vehicle was stolen or totaled, your comprehensive coverage or collision coverage would pay out an amount equal to the vehicle's ACV. If that amount isn't enough to cover your remaining lease payments, then your gap insurance may cover them instead. Note that you need comprehensive and collision coverage in order to add gap coverage to a car insurance policy.
Progressive offers loan/lease payoff coverage, which is similar to gap coverage. The main difference is that the payout for loan/lease payoff coverage is limited to no more than 25% of your vehicle's value, though the exact limit varies by state.
Should I get gap insurance on a lease?
Many lessors require customers to purchase gap insurance for leased vehicles. This is to help the customer pay the difference if something happens to the car while providing the lessor with financial security if the customer can't afford to pay the balance. Check your lease agreement to see if gap insurance is required for you.
Even if you aren't required to have gap coverage, it can still be beneficial as leased cars depreciate quickly. Gap insurance can especially come in handy if:
- You made a low down payment
- Have a long lease term
- You're leasing a luxury car
How do I know if I have gap insurance on my lease?
Some car dealerships and lessors automatically add gap insurance as part of your loan agreement/payments. Read through your lease agreement to determine whether or not you already have gap coverage.
Keep in mind that even if you're signed up for gap insurance through the dealership, you don't necessarily have to stick with it. You could possibly save by adding gap insurance for your car lease to your existing car insurance policy instead. If your lessor requires you to have gap insurance, make sure to pass on relevant paperwork to prove that you've gotten coverage elsewhere.
Do I need gap insurance on a lease if I owe less than the car's ACV?
The point of gap insurance is to help you cover the financial difference between what you owe and what the car's worth. So, if the vehicle is worth more than what you owe on it, you don't have any need for gap insurance. Just be sure to get approval from your lessor if you're foregoing gap insurance or canceling it from an existing insurance policy.