Leasing a car can be exhausting. The best part is you get to drive around in recently released models but without the hassle of owning it for the long term. But make sure that you know how leasing works, particularly what is included in the coverage when it comes to insurance of the vehicle. This is where gap insurance comes into play because it helps in situations where unfortunate life events occur.
Let’s assume the following scenario: You are out on the interstate enjoying your new car when suddenly things go wrong. You get into an accident, and your vehicle gets wrecked. If you’re leasing, you would probably think that your auto lease insurance would be sufficient. But what if you owe more than what you signed in the lease and this value is way less than what the car is worth? Such situations are the perfect reason to get gap insurance.
Dealing with leases and insurance does not have to be stressful. Let us dive into the topic of why gap insurance is mandatory and not an option for every single person who decides to lease their automobile.
The Gap Insurance Coverage of Cars:
If you are leasing a car, the phrase ‘gap’ should be used in light of the circumstances that you would be having an insurance policy on your leased vehicle. Market depreciation is an insurable risk and general insurance on a motor vehicle only ensures its market value at the time of a loss event, for instance, a theft or a crash. This may expose you to risks of being underinsured, which could be detrimental to your finances.
Normally, repaying the value of the leased vehicle takes time, while depreciation starts the moment a driver drives out of the showroom. In the event of a total loss of a leased car, the leasing company will pay out its cash value and not the outstanding balance on the vehicle. Such a void is the reason why car owners need to be comfortable paying higher premiums. For the lessee, having to pay thousands of dollars for a car they do not have in their possession is outrageous for most drivers.
How the Gap Insurance Applies to Leased Cars:
The word ‘lease’ is often interchangeable with the term ‘rental,’ meaning the bargain allows possession of the car for a specified duration. In such instances, the owner would be liable for the amount of the vehicle during the period up to total loss through an accident, in which case, the market value would only be applicable.
This is where the gap insurance comes in. It fills the space created by the amount you still owe on your lease and the amount your ordinary insurance policy would reimburse you. For instance, assume that you had leased a car valued at thirty thousand dollars but lost value after six months to the tune of twenty thousand dollars. In case you owe twenty-five thousand on your lease, standard insurance coverage will not cover that shortfall.
There is also some missing amount, which will get compensated so that you are not left with any additional cost after a bad event. Such coverage can be very important when you have to deal with some complications that arise when leasing cars.
Advantages of Gap Insurance for Cars on Lease:
For leased vehicles, gap insurance is necessary. If someone else has the use of your leased car, which gets stolen or destroyed completely, it will then simply be insured at its actual cash value at the time of loss like any other car. Which this time will amount to less than what you owe against your lease. That is where gap insurance comes into play. It covers the outstanding amount that your primary insurance provider allows, valuing your remaining lease. This could prevent you from spending a lot of money out of pocket during a moment of panic.
As a moderation to their clients, many leasing organizations also impose this coverage because it safeguards their investment. These coverages are met by having gap insurance and in addition to it, peace of mind is available during the duration of the lease contract. They protect unforeseen expenses while a client is driving his new car without having much apprehension that losses would hit the budget broadly.
How Much is Gap Insurance And Tips To Get It Cheaply?
Gap insurance is quite cheap, available in the range of $20 to $40 per year. The cost can vary depending on the lease period and the vehicle that one chooses. To cut costs, evaluate the marketplace. This is because the rates for gap cover depend from one provider to another. Compare costs and terms from several insurers to select the most favorable offer. Also, consider writing your gap insurance together with your car or home cover, as many companies give appreciable discounts to clients with more than one policy.
Another tip is to negotiate with your leasing company. Some leasing companies can offer gap insurance coverage at a much lower cost than that of normal market prices. Gauge the amount of gap cover you need according to the depreciation of the leased cars and your current budget. It is better to customize it so that cost-effective measures are taken without compromising the coverage needed.
Options Available Instead of Gap Insurance on Leased Vehicles:
- If you do not feel that gap insurance meets your requirements, there are other possibilities to explore. One alternative that may serve as a good fit is taking out a collision policy, which has a high deductible. This lowers the premium while still providing adequate coverage in the event of a collision.
- Increasing the actual cash value (ACV) of your auto insurance policy is another route. By doing this, you are more likely to receive a larger payout in the event of a total loss of your car, and this helps to close some of the holes left by standard policies.
- Additionally, some renters should consider exploring insurance products that are more applicable and specialized to vehicle leases. Such plans exist for leased vehicles and can include options that successfully mitigate depreciation.
- Also, investigate accounts that would help you cover out-of-pocket expenses resulting from an accident or theft. It may give assurance without looking for further policies by keeping aside some amount.
Conclusion:
Gap insurance is essential for individuals leasing a car. It supplements the existing insurance coverage, which does not necessarily provide enough payout. When a leased vehicle gets into an accident and cannot be repaired, the expenses may easily reach the boiling point. Without a gap insurance policy, one would end up in a situation where they have to continue servicing the lease even if their vehicle has depreciated. It is, in essence, important to understand this cover as it enables an informed decision. It is more than just an extra cost; it is assurance on the roads.
Leasing has its advantages, but it also has its disadvantages. Taking the policy of gap insurance means that you are taking the right steps in protecting your investment and your financial future. Whether you decide to buy or look for other options, it is essential to have active coverage in place to avoid any untimely hassle during the course of the lease.
FAQs:
1. What is gap insurance?
Gap insurance is used to cover the difference in payment that exists due to the depreciation of a leased vehicle, which is most likely to occur due to the vehicle being damaged or stolen. This is a cover that ensures that customers are not left with a vehicle that is devalued while still carrying the financial burden for its repayment.
2. Is gap insurance necessary for those leasing a car?
It is not mandated insurance for any leasing, but it is often encouraged by leasing companies even though it is not mandatory. It is very useful to have it since the chances of experiencing high out-of-pocket expenses after any incidents involving the car are higher.
3. What is the average cost of gap insurance?
There are many factors that determine the costs, but on average, gap insurance ranges from $20 to $50. Some companies include it in the leasing packages that they provide to their clients, so it is wise to do some research.
4. Can gap insurance be acquired after the leasing process?
Absolutely yes, it is possible to acquire gap insurance during the lease period. Stand-alone policies are available from many insurers that meet this requirement without requiring additional obligations.
5. Are there any options available other than purchasing third-party gap insurance?
Some third-party wholesalers offer gap insurance that comes bundled with their automobile policies. Other than that, certain leasing companies may also offer this type of coverage, which is under the lease terms. Always check your options before you decide on how to proceed.