Tuesday, September 27, 2022

What Is Loan Lease Payoff Coverage

Don't Miss

Collision And Comprehensive Coverage

What Is Loan or Lease Gap Coverage?

Collision coverage pays to fix your car if you are in an accident. Comprehensive coverage insures your car for anything else that might happen, like having it stolen, having something fall on it or being the victim of vandalism. Together, these types of insurance are sometimes referred to as full coverage.

Make Sure You Know What You’re Buying

Auto dealerships and/or lenders may try to sell you what they call gap insurance, but it’s not actual insurance. What auto dealerships commonly offer is most likely a debt waiver agreement they advertise as gap insurance. However, there are significant differences between these two products.

Debt waiver agreements sold at a dealership are often overpriced, and you can’t cancel or return it if you pay down your auto loan quickly and build equity. A gap insurance endorsement, however, usually only raises your premium slightly, and you can cancel it if you put yourself in an equitable situation with your auto loan.

It’s a good idea to ask your insurer about gap insurance options before you shop for a new vehicle or motorhome so you can compare their insurance products against what the auto dealer will offer. Your insurance company may never mention gap insurance or offer it to you, but they must sell it to you if you ask.

If you have questions, before you buy, give us a call at .

Gap Insurance For Leased Cars

Like any car or SUV, leased vehicles depreciate quickly. Therefore, if you did not put much money down and you still owe a sizable amount on your total lease payment, you will likely owe more than the vehicle is worth if you get into an accident. In this situation, gap insurance coverage for your lease might be a smart financial decision.

As with a purchased car, it may help you to compare your total cost including taxes and anything else you rolled into the lease to the vehicles MSRP to determine if you have a gap.

And just like a purchased vehicle, the difference between what you owe and what the cars worth decreases as you make monthly payments and as the car depreciates. This means you may not need the coverage for your entire lease period. You may only need it for a few months, depending on your lease agreement.

Looking to save money on auto insurance?

Don’t Miss: Rv Loan Rates Usaa

Youre Our First Priorityevery Time

We believe everyone should be able to make financial decisions with confidence. And while our site doesnt feature every company or financial product available on the market, were proud that the guidance we offer, the information we provide and the tools we create are objective, independent, straightforward and free.

So how do we make money? Our partners compensate us. This may influence which products we review and write about , but it in no way affects our recommendations or advice, which are grounded in thousands of hours of research. Our partners cannot pay us to guarantee favorable reviews of their products or services.Here is a list of our partners.

What Does Lease/loan Gap Insurance Cover

What Is Gap Insurance?

Buying gap insurance coverage may be required by your lender. When financing is in play, lenders may also require you to purchase collision and comprehensive coverage to help recover the costs of replacing the vehicle in the event of a covered total loss. Because the cars actual cash value will typically be reimbursed in the event of a total loss with comprehensive or collision coverage, a gap insurance coverage is key to paying off the gap between what you owe and the ACV of the car because the vehicle depreciates in value over time.

Lets say you get an auto loan for your cars full value of $18,000. Months later, youre involved in an accident where your coverage applies and the vehicle is considered a total loss. The actual cash value of the vehicle is $14,000 which is what your insurance company will typically pay but, because of the structure of your loan repayment, you still owe $17,000. This leaves you with a $3,000 bill for a vehicle you no longer have. If you have the loan or lease assistance coverage endorsement, that $3,000 gap is covered by insurance instead of it all coming out of your pocket.

Recommended Reading: What Credit Score Is Needed For Usaa Auto Loan

Is Gap Insurance Worth It

When there’s a significant difference between your car’s value and what you owe on it, gap insurance is a valuable safeguard. Consider buying gap coverage in these instances:

  • You’re leasing your car: Lenders may require gap coverage on leased vehicles.
  • You made a lower down payment on a new car: If your down payment is less than 20%, you could end up with negative equity on the vehicle as soon as you drive away from the dealership.
  • You have a longer financing term for your vehicle: The longer your vehicle is financed, the better the chance of owing more on the vehicle than its worth.
  • You want to protect yourself against depreciation: Some cars have a higher depreciation rate than others, so knowing the average depreciation for your vehicle could help determine if you need gap coverage.
  • You have a loan rollover: If you owe more on the loan than your car is worth at the time of renewal, gap insurance can help protect you against the negative equity.

Should I Purchase Loan/ Lease Coverage

Something important to note is that you must have comp and collision on your policy to have loan/lease payoff. But it can be a very useful coverage to have, even if it doesnt cover everything you owe.

Talk to a licensed Elephant Agent to help determine the best coverage for you they might see benefits to you having it that youll miss on your own. And when getting an agents help, always feel comfortable enough to ask questions if you dont understand! Our agents are here to help, and love to answer any and all questions. Its important to feel confident in your coverage and know how it works.

Recommended Reading: What Credit Score Is Needed For Usaa Auto Loan

Ask Your Dealer About Allstate

This product is sold through authorized dealers around the country.

  • Products

Underwriting Companies | Privacy & Security | Notice of Collection | About Us | Terms of Use | Accessibility Statement

You’re In Good Hands® This website uses cookies to improve user experience. By using this website and clicking the links within this window, you agree to our Terms of Use. To learn more about how we use your information, please visit our Privacy & Security page.

How We Make Money

What is Gap insurance and the difference between Lease / Loan payoff insurance?

You have money questions. Bankrate has answers. Our experts have been helping you master your money for over four decades. We continually strive to provide consumers with the expert advice and tools needed to succeed throughout lifes financial journey.

Bankrate follows a strict editorial policy, so you can trust that our content is honest and accurate. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. The content created by our editorial staff is objective, factual, and not influenced by our advertisers.

Were transparent about how we are able to bring quality content, competitive rates, and useful tools to you by explaining how we make money.

Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products and, services, or by you clicking on certain links posted on our site. Therefore, this compensation may impact how, where and in what order products appear within listing categories. Other factors, such as our own proprietary website rules and whether a product is offered in your area or at your self-selected credit score range can also impact how and where products appear on this site. While we strive to provide a wide range offers, Bankrate does not include information about every financial or credit product or service.

Read Also: What Credit Score Is Needed For Usaa Auto Loan

Why Getting Gap Insurance Is Worth It

For example, say you buy a car for $20,000 and your down payment is $2,000. This small down payment suggests that gap insurance might be worth it, but its still a good idea to check the cars anticipated value after a year to determine if there will be a gap. If the car is worth $12,000 after a year but youll still owe $15,000, gap insurance could be a smart investment. If you dont buy gap insurance and this car is totaled after a year, youll still owe $3,000 even though you can no longer drive it.

On the other hand, if your down payment is large enough or the cars resale value is high enough that youll never owe more than the car is worth, gap insurance is unnecessary. Similarly, if you do owe more than the car is worth but you have the resources to pay the difference if the worst happens, it might be worth taking the risk.

How does gap insurance work?

Gap insurance is an optional type of car insurance coverage that pays the difference between the balance on a car loan or lease and what the vehicle is actually worth if it is declared a total loss. Gap insurance ensures you don’t have to make payments on a car that is no longer drivable.read full answer

Gap coverage usually only applies when a driver has comprehensive and collision insurance. Collision or comprehensive coverage will pay out the cars value if its a total loss, and then gap insurance fills in the rest.

Its All About You We Want To Help You Make The Right Coverage Choices

Advertiser Disclosure: We strive to help you make confident insurance decisions. Comparison shopping should be easy. We are not affiliated with any one insurance provider and cannot guarantee quotes from any single provider.

Our insurance industry partnerships dont influence our content. Our opinions are our own. To compare quotes from many different insurance companies please enter your ZIP code on this page to use the free quote tool. The more quotes you compare, the more chances to save.

Editorial Guidelines: We are a free online resource for anyone interested in learning more about insurance. Our goal is to be an objective, third-party resource for everything insurance related. We update our site regularly, and all content is reviewed by insurance experts.

Loan or lease payoff coverage, also called gap insurance, is a special type of insurance coverage that can be purchased for leased and financed vehicles. This type of insurance is used to pay the gap between what a car is worth and what you may owe on it in the event of a total loss. Depending on your situation, gap insurance may be a requirement from your lien holder or leasing agency, or it may be an optional coverage. Either way, gap insurance can be extremely valuable and protect you from financial hardship and unwanted surprises down the line.

You May Like: Does Va Loan Work For Manufactured Homes

Where To Buy Gap Insurance

Most lending institutions offer lease gap insurance as part of the terms of the loan or lease. This insurance is underwritten by the lending agency, and the expense is added on to the other costs of the loan. You pay for the gap coverage as part of your car payment. For this reason, many people dont realize that they already carry gap insurance. Be sure to check your statement to see if its included or contact your lender to confirm before buying additional coverage.

If you do not already have loan payoff insurance through the lending agency, you can usually purchase it through your private auto insurer. Although these coverages are not always widely advertised by insurers, theyre usually available if you ask. In most cases, the monthly fee to add this coverage to your policy is quite affordable and definitely worthwhile. A few extra dollars a month is far superior to being stuck with a car payment for a totaled vehicle in the event of a major accident.

What Is Gap Insurance

What Is Gap Insurance?

Gap insurance is an optional type of car insurance that covers the gap between what a car is worth and what the driver owes on their auto loan or lease if the car is totaled or stolen. Without gap insurance, drivers can be stuck paying the remaining loan or lease balance on a vehicle that they can no longer drive.

You May Like: What Does Usaa Certified Dealer Mean

Loan/lease Insurance Vs Gap Insurance

Gap insurance tends to be a bit more generous and flexible than loan/lease payoff coverage and in some critical ways. You can often avoid out-of-pocket costs at all with gap insurance. You won’t be forced to come up with a portion of the balance in order to retire the loan against the destroyed or stolen vehicle.

Loan/Lease Payoff Insurance
Pays only up to 25% of the vehicle’s actual cash value Pays the difference between the vehicle’s actual cash value and the loan balance against it

Do I Need To Buy This Coverage

It’s always best to discuss this type of coverage with your insurance agent rather than deciding on your own whether you need it. Make sure you understand all the details and restrictions that apply to loan/lease payoff agreements.

It can provide helpful coverage even if it doesn’t pay 100% of what you owe, and it will certainly come in handy compared to not having any access to coverage when you know you’re underwater on your car loan though some consumer advocates argue that the premiums for these coverages often are too high given that claim payouts are fairly infrequent.

Recommended Reading: Used Car Loan Calculator Usaa

Factors To Consider When Buying Gap Insurance

Here are a few things to think about if youre considering gap insurance.

  • Type of insurance. In most cases, you can get gap insurance only if you have comprehensive or collision coverage on your car.
  • The current value of your car. If your car were totaled tomorrow, the value listed in a source like the Kelly Blue Book doesnt necessarily equal the reimbursement from the insurer. Still, that listing can give you a good ballpark figure to check against your loan balance. If your car got totaled tomorrow and you still owed on it, gap insurance can bring peace of mind.
  • Your down payment and loan. For example, if your down payment were at 20 percent and youre paying off the loan in 36 months or less, youre likely staying well ahead of depreciation. However, if you have a 60-month loan, gap insurance protects you when your loan balance to exceed your vehicles Actual Cash Value.
  • Fast depreciation. Some makes and models hold on to their value longer than others. If your vehicle depreciates more quickly than average, gap insurance may be a good idea.

Why You Can Trust Bankrate

2017 Auto Loan Coverage Guide | Loan Lease Payoff Coverage Explained

Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. Weve maintained this reputation for over four decades by demystifying the financial decision-making process and giving people confidence in which actions to take next.

Bankrate follows a strict editorial policy, so you can trust that were putting your interests first. All of our content is authored by highly qualified professionals and reviewed by subject matter experts, who ensure everything we publish is objective, accurate and worthy of your trust.

Our insurance team is composed of agents, data analysts, and customers like you. They focus on the points consumers care about most price, customer service, policy features and savings opportunities so you can feel confident about which provider is right for you.

  • We guide you throughout your search and help you understand your coverage options.
  • We provide up-to-date, reliable market information to help you make confident decisions.
  • We reduce industry jargon so you get the clearest form of information possible.

All providers discussed on our site are vetted based on the value they provide. And we constantly review our criteria to ensure were putting accuracy first.

Don’t Miss: Va Loan Lenders For Mobile Homes

Why You Need Gap Insurance Coverage

Whether you leased or bought it, a brand-new car is something to celebrate! At American Family Insurance, we want you to hit the road with peace of mind knowing youve got just the right coverage to protect your set of wheels. Our auto loan or lease assistance coverage is a great way to safeguard your car for the road ahead.

When Do I Need To Get The Loan Or Lease Assistance Coverage

As youre shopping for cars, its key to have your eye on this important coverage. At American Family, this insurance is only available when youre adding a vehicle policy under your name. But you can remove the endorsement in the future. Once you owe your lender less than what your car is worth, you can remove the loan or lease assistance coverage endorsement coverage from your policy.

Don’t Miss: Drb Student Loan Refi

Gap Insurance Vs Loan/lease Payoff

Ariana Chávez has over a decade of professional experience in research, editing, and writing. She has spent time working in academia and digital publishing, specifically with content related to U.S. socioeconomic history and personal finance among other topics. She leverages this background as a fact checker for The Balance to ensure that facts cited in articles are accurate and appropriately sourced.

Everyone knows that a new vehicle depreciates the moment you drive it off the lot, but did you know that a new car loses 10% of its value in the first month of ownership, and 20% in the first year?

If youre lucky enough to be able to purchase a new vehicle in cold hard cash, you dont need to worry about what that depreciation means for you. But if youve taken out a loan to finance your new vehicle, especially if youve put less than 30% down on your vehicle, you need to consider taking additional steps to protect your investment if something happens to your vehicle.

When purchasing a new vehicle, it is important to take action when you think you might be upside down on the loan for any period. Gap insurance or loan/lease payoff coverage is your answer. But which one would be the best choice for you? A couple of things to consider include what time frame you have to purchase the coverage, how much coverage you need, how much the coverage costs, and its availability.

More articles

Popular Articles