Gap insurance, also known as loan-lease payoff coverage, can provide valuable financial protection during the early years of your car's life if you have a loan or a lease.
If a loss occurs, gap car insurance will pay the difference between the actual cash value (ACV) of the vehicle and the current outstanding balance on your loan or lease. Our GAP coverage will even pay your insurance deductible!
If your vehicle has been totaled by a covered peril, such as an accident, theft, fire, flood, tornado, vandalism, or hurricane, your insurance company will pay you the actual cash value for your car, if you have comprehensive and collision insurance. This amount is often considerably less than the actual amount you still owe on your loan or the amount due for a lease payoff.
When the amount of your ACV payout is less than what you owe on your lease or loan, the loss from this financial shortfall is the "gap" you can be left owing.
This is how a "gap" occurs (using fictitious numbers):
- You choose a car that costs $25,000 and you drive it off the lot.
- After paying the down payment you owe $24,000 in car payments over five years (0% interest loan = $400 car payments).
- You purchase physical damage insurance (comprehensive and collision) with a $500 deductible to protect you against damages and loss.
- You have an accident while you are still upside down on your loan or lease (meaning you owe more on a car than it's worth) and your vehicle is totaled out.
- The insurance company determines that the actual cash value of the car is only $22,000, but at the time of the loss you still owe $23,500.
- Gap insurance should pay the difference plus your deductible, totaling $2,000. (Note: not all gap policies pay the deductible).
Is gap insurance transferable after a refinancing?
Gap applies to a specific loan or lease and typically is non-transferable. If you already had a gap policy in place, that gap insurance would normally be voided out when you refinance a vehicle -- you would need to get a new gap insurance policy on it.
Is gap insurance transferable from one vehicle to another?
Gap insurance cannot be transferred to a different vehicle or loan. If you are trading in, selling, or buying a new vehicle, you will need to get a new policy to cover the newly financed vehicle.