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When you’re exploring a new lease, there are a lot of decisions to make. For example, do you need GAP insurance on a lease? Is it included?
Before you sign for the car, make sure you understand GAP coverage, what it does, and when it’s required. Some lessors won’t lease to you without it, while others make it optional. We’ll go over GAP insurance in depth so you can make an informed choice when leasing your next vehicle.
GAP insurance is also called Guaranteed Asset Protection coverage. You can think of it as covering the gap between the value of your vehicle and what you still owe on the lease. When you have GAP coverage, you’re covered for what you owe on the lease, not just the vehicle’s actual cash value (ACV), which may be less.
For example, say you have a 36-month lease. After a year, you still have $25,000 remaining on your lease when your vehicle is unexpectedly totaled. The car’s ACV at the time is $22,000. Without GAP coverage, you’d be on the hook for the $3,000 difference.
You may need or want GAP insurance on an auto loan as well. GAP coverage provides the same kind of protection when you have an auto loan as it does when you have a lease.
When you finance your car, but it’s totaled in an accident, you still have to pay off the loan. If the car’s value is less than what you owe, GAP protection covers the difference. Say you finance a new car and it’s totaled after six months. You still owe $29,500 on the loan, but insurance says the car’s value is now $27,300. With GAP coverage, the $2,200 difference won’t come out of your pocket. RefiJet offers a GAP waiver that gives you this protection built right into your loan.
Some dealerships require GAP insurance when you lease a car. In others, it may already be included in the lease agreement. If your lease doesn’t require or include GAP coverage, you can get it through an add-on from the dealership, a third party or your car insurance company.
If GAP insurance is not included and you decline to add the coverage yourself, you’ll be responsible for paying the difference between the car’s ACV and the covered amount if something happens.
In many cases, GAP insurance is included in a lease, so you’ll only need to make your regular lease payment to be covered. Read your lease paperwork to find out if this coverage is included.
If your lease doesn’t include GAP insurance already, your dealer will probably offer this coverage to you. You can accept it from the dealer, or you can request a quote from your car insurance company for the coverage. It may be less expensive to get GAP insurance from your auto insurance provider, but you should run the numbers to be sure.
If your leased car is stolen or totaled, you can file a claim on your GAP insurance policy. If your claim is approved, the insurance company will cut a check to your lender or leasing company for the negative equity, up to your coverage limit.
With GAP insurance on a leased vehicle, you’re protected from owing the difference between the car’s depreciated value and your remaining lease payments. GAP insurance on a leased car covers:
GAP insurance does not cover:
GAP insurance is often required and included in your lease agreement. However, it might be worth it to get GAP coverage on your lease, even if it’s not required, when:
The specifics of leasing can be complicated, even if you’ve leased a car before. RefiJet knows the ins and outs of leasing, including what to do when you want to buy out your lease. Learn everything you need to know about auto financing, including how to borrow funds to purchase your leased vehicle or refinance your auto loan. Check out our driver resources for more information supporting smart decisions about your lease.
Here are some frequently asked questions about GAP insurance for leases.
Review your lease agreement to find mention of GAP coverage, GAP protection, GAP waiver, or GAP insurance. You can also contact your leasing company for more direct help. If you don’t see the coverage in your lease agreement, check your auto insurance policy for GAP coverage.
Like Guaranteed Asset Protection insurance, auto loan or lease coverage helps you “bridge the gap” between the value of the vehicle and what you owe. For some insurance companies, it’s just a difference in terms. However, some companies put a percentage limit on auto loan and lease companies, so they’ll only pay up to a certain amount of your negative equity (such as 25%). Be sure to read the fine print so you know what you’re getting.
Yes, you may need GAP insurance with your lease. The dealership or leasing company will let you know whether this is a requirement or if it's already included in your lease agreement. If the lessor doesn’t require GAP, you may still want to obtain this coverage elsewhere, such as from your auto insurer.
GAP insurance covers the difference between what your vehicle is worth at the time it’s stolen or totaled and what you still owe on the lease. So if the vehicle is worth $30,000 but you still owe $33,000 on the lease, GAP helps you cover the $3,000 difference.
Wondering if you need GAP insurance for your leased car? Learn when it's required, how it works, and why it can save you from major financial loss.
