Gap insurance protects leased vehicles in the event of theft or damage before the lease is fulfilled. It covers the difference between the outstanding balance of the lease and the current value of the vehicle. The policy may be provided by the lessor or a third party, but the lessee must keep payments current and pay any applicable deductibles. Gap insurance is affordable and useful in catastrophic events.
Gap insurance is a type of insurance that is often extended to people who lease rather than buy cars. The typical gap insurance policy provides protection in cases where the vehicle is destroyed or stolen before the terms of the lease are fulfilled. This usually involves paying the difference between what is still owed on the lease and the value of the vehicle at the time of the accident or theft.
Gap insurance policies may differ in the way coverage is provided. One model requires the lessor to include a clause in the lease that waives any difference between the current value of the vehicle and the outstanding balance of the lease. A second model for breach insurance involves a third party who will be liable for the difference in the event the car is stolen or totaled. Essentially, the third party will pay the difference or gap between the current value and the amount due on the lease.
In all types of gap insurance coverage, there are some constants. First, lease payments must be current at the time the vehicle is destroyed or stolen. Otherwise, the gap insurance is considered null and void. Second, the tenant is still responsible for paying any applicable deductibles under the terms and conditions of the lease. Finally, there is a good chance that the lessee will have to continue making payments until the proceeds of the gap insurance are released to the landlord and the terms of the lease are deemed fulfilled.
As with any type of auto insurance, gap insurance is something the owner hopes never have to use, but finds extremely useful in the event of theft or some type of catastrophic event that renders the vehicle unsalvageable. Gap insurance is generally not expensive, especially when the premium is considered in light of the enormous liability the renter would incur without the coverage.
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