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GAP Insurance (Loan/Lease Insurance)- What is it?

Will your auto loan or lease be paid off if your car is totaled in an accident?

GAP Insurance, Huff Insurance, Pasadena MarylandYou have a loan on your brand-new car, if you total your vehicle is the insurance company required to pay off your loan?  If you do not have GAP insurance, then no, the insurance company is not required to pay off your loan.  The insurance company is only required to pay you the actual cash value of the vehicle at the time of loss.

Does that mean that you could still owe money to the loan company even though my vehicle is totaled?

Potentially, yes!  Especially if you financed the car with no or little money down.  Or, if you rolled a balance from a previous vehicle into the loan for this vehicle.

What can I do to make sure that my loan or lease of the vehicle is paid off if my vehicle is totaled?

You can purchase loan/lease gap coverage.  This endorsement that can be added to your auto insurance policy may be available for new vehicles or vehicles that are only within a few years old.  Each carrier has guidelines of when the coverage is available.

Loan/lease gap insurance coverage endorsement provides coverage to pay off the balance of the loan or lease.   This is done even though the balance on the loan is more than the vehicle is worth at the time of the claim.

There can be limits on how much the insurance company will pay.  Some companies will only pay up to 25% more than the value of the totaled vehicle.  So check with your insurance company to verify their actual coverage.

Can I add loan/lease gap insurance to my vehicle at any time?

No, most carriers only allow a small window of time after you purchase the vehicle to add this coverage.   Usually the coverage needs to be added at the time the vehicle is added or at most 30 days after the vehicle is originally purchased.

Should I purchase the loan/lease gap insurance coverage from the auto dealer or my agent?

For a new car it is generally much more economical to purchase it from the auto insurance company.  Loan lease gap coverage is usually less than $50 a year to add.   When it is added to your loan, we have seen clients paying several hundred dollars for this coverage.

For a used vehicle, I would recommend talking to your agent before purchasing to confirm that the insurance company would even be willing to add the loan lease gap coverage to the policy.  As previously mentioned, on older vehicles there are restrictions on the age of the vehicle that the carriers are willing to add or offer this coverage.

Do I need loan/lease gap coverage if I put down a healthy down payment or had a good trade in?

Well that is your decision.   If you are certain that you will never be upside-down in the loan, where you owe more than the vehicle is worth then you do not have to purchase this coverage.   Loan/lease gap coverage is an optional endorsement and not required to add to the policy.

What do I do if I purchased loan/lease gap coverage from the lender and then find out my agent can add it for much less?

First, act fast! The sooner that you discover this the more likely it will be that you can get it rectified.  Some lenders are willing to remove it and others are not.   The longer you wait to request that they remove the coverage, the less likely it is that they will remove it.

So, do your research before you go to the dealer.  If you know that type of vehicle you are purchasing then discuss with your agent what options would be available. Your agent will let you know if you would be eligible for loan/lease gap coverage and the pricing.    This way you will have a comparison in cost to compare to what the finance company is willing to offer.

Can I purchase the loan or lease gap insurance coverage without having auto coverage with you?

Unfortunately not.   GAP coverage is an endorsement to the personal or commercial auto insurance policy. Therefore, it is not available to be purchased by itself through Huff Insurance.

Call Huff Insurance at 410-647-1111 if you have any questions regarding GAP insurance or any other insurance offering.

**Please note that this blog is for general informational purposes only.  Insurance coverage and offerings varies by state and by company.  To see what options are available to you for GAP insurance , please check with your insurance company.

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