Buy Lease or Loan Gap Coverage

The dramatic plummet of your car's value as soon as you drive it off the dealer's lot can put surprising and undue strain on your wallet if your car is totaled. The amount your insurance company calculates as your car's actual cash value can be stacks of bills away from what you still owe on your car lease or loan. Since you're responsible for paying the remainder of your lease or loan even when your car is totaled, you might have to come up with hundreds — maybe even thousands — in cash.

Unless you have gap insurance.

Gap insurance pays the difference between the amount your insurer pays for your totaled car and the amount you owe on your lease or loan.

Many car lease contracts include gap insurance and require you be in total compliance with the lease in order for the gap coverage to pay out. Ford's Red Carpet lease, for example, requires you to continue making your regular monthly payments until Ford receives the gap insurance payment. The cost of the gap insurance when you lease is built into the agreement, so you need not make a special trip to your auto insurer to request it.

The Loan Gap


If you decide to finance your vehicle through a bank, you'll likely not have a contract that provides you with automatic gap insurance. Many auto insurers sell gap insurance but, curiously, they don't advertise the fact. And some of the biggies don't sell it at all. GEICO and State Farm Mutual Automobile Insurance Co., for example, don't sell it. Why? Could be that policyholders aren't beating down the doors for gap

coverage. Could be that not everyone who owns a car needs gap insurance. Could be that the leasing companies have filled the void in their own contracts.

"We don't see a big need for it, but we're going to offer it because we don't want to be ruled out [by policyholders for not offering the coverage],"