What is loan lease payoff coverage?

Yes, you need gap insurance if you have full coverage and still owe money on a car loan or lease. Gap insurance is needed even if you have full coverage because full coverage does not cover the difference between what you owe on a loan/lease and the car’s actual cash value, like gap insurance does.… read full answer

When You Need Gap Insurance If You Have Full Coverage

• You’re financing/leasing a new vehicle for a long term (60+months).
• You made a small down payment on a new vehicle (less than 20%).
• You rolled over negative equity from a previous auto loan.
• You financed a vehicle that has a high depreciation rate.
• Your contract has a high interest rate.
• Your lender or lessor requires gap insurance.

The Difference Between Gap Insurance and Full Coverage

Gap insurance – short for guaranteed asset protection insurance, and sometimes called loan/lease payoff coverage – protects you financially from having to cover the cost of depreciation, or the difference between what you still owe on your contract and what your insurance company says the vehicle is actually worth today. Collision and comprehensive protection – the main components of full coverage, along with liability insurance – won’t cover that. As a result, you need gap insurance even if you have full coverage, especially if your situation leads to a relatively large gap to cover.

It’s important to remember that while gap insurance isn’t required by any insurer or state, having gap insurance on top of full collision and comprehensive coverage will probably be required by your lender if you’re financing/leasing a new vehicle, and even some used vehicles. In addition, gap insurance is meant specifically for drivers who still owe a balance on their vehicle, so if you own your car outright and have full coverage, you don’t have a need for gap insurance.

To find out whether you have gap insurance, check your existing car insurance policy and the terms of your loan or lease. Drivers can get gap insurance through their insurance company as an add-on or separately through their auto lender, so it’s important for drivers to check both places.

How To Know If You Have Gap Insurance… read full answer

1. Check with your car insurance company.

You can look through records such as your recent bills, or you can log in to your account on the company’s website. If this fails, you should call to ask about your coverage.

2. Check with your auto lender.

If you didn’t buy gap insurance from your normal insurance company, you could have purchased it from the dealership, bank, or credit union that supplied you with a loan or lease. It can be easy to overlook gap insurance from one of these sources since it’s sometimes included in your contract automatically.

3. Check your financial documents.

If you do not have gap insurance through your dealership, lender, or car insurance company, you probably are not covered. But as a last resort, you can look through your financial records – such as your online bills, credit card statements, and checkbook – to try to find some clues.

Gap insurance, which covers the difference between your loan balance and the car’s actual value, can come from a dealership, bank, credit union, or car insurance company. It’s unlikely that you bought a stand-alone gap insurance policy without realizing it, so your first step should be to check with the obvious candidates.

Finally, if you realize you don’t have coverage, check out WalletHub’s recommendations on when gap insurance is worth it and where to buy gap insurance.