Posts Tagged ‘car lease insurance’

What is Total Loss Protection for Car Leases?

Tuesday, September 6th, 2011

Total Loss Protection can also be identified as “gap insurance” or “gap protection”. Total Loss Protection allows you to limit your financial liability in case your leased vehicle is lost, stolen, or destroyed. This form of protection can be provided by the leasing company as part of your leasing contract, but it can also be purchased from a third party company. If it is provided by the leasing company, it will be clearly explained in the leasing contract.

Why Would You Need Total Loss Protection?
Most of the time, the market value of a leased vehicle drops faster than the lease payoff amount, which creates a “gap”. If you ever have to deal with your car being lost, stolen, or destroyed, your insurance company’s settlement may not cover the entire payoff amount on your car lease. This is where having Total Loss Protection becomes important. Total Loss Protection will cover the gap between what the insurance company pays out and what the actual payoff amount for the lease is.

You may still have to pay for past due monthly lease payments, the insurance deductible, or excessive wear/use/mileage, unless your lease contract or insurance company also covers these costs.

In summary, Total Loss Protection or some form of gap insurance protects you if there is a difference between your insurance company settlement and the remaining balance or payoff amount on your auto lease.

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Gap Insurance For Leased Cars

Sunday, May 2nd, 2010

When you leased a car and purchased car insurance for it, you probably thought that it included all of the insurance needs for the car. However, this isn’t the case. Gap insurance for your car is extremely necessary. It’s all the more an important requirement to purchase gap insurance for leased cars. Your gap insurance will actually provide protection for the car that you have leased especially in the first few years of the lease. If a mishap were to really happen, then the gap insurance for leased cars will payout the difference between the actual cash value of the car and the outstanding balance that is there on your leased car at that moment in time.

It has often been assumed by car lessees that if their car has been completely totalled, then the insurance company will pay the purchase amount of the car or at least the remaining part of the lease that is owed. However, that is really not the case. For this reason, many insurance companies will offer a special add on gap insurance feature.

The gap insurance that you purchase may be subject to certain rules or exclusions.

  • The limit of the loss for the car shouldn’t exceed $50,000.
  • The settlement that would be made will not cover any penalties or such charges.
  • The total loan/payoff amount on the vehicle should be $100,000 or less than this amount.
  • There shouldn’t be any balloon payment due at the end of the term.

Do You Need Gap Insurance?

Remember that the moment you drive off with your leased car from the showroom, the car has started depreciating. Typically, it will depreciate 20% the moment you drive off with it. Now if the car is stolen or if it’s totalled in an accident, the insurance company will pay the actual cash value. However, the outstanding balance will still be on the payoff amount. Here, the gap insurance will pitch in and save your day, or else you will be left footing a bill that could be quite substantial.

If any of the following points apply to you, then you would surely need gap insurance.

  • At the time of purchase, did you pay less than 20% as down payment for the car?
  • Are you getting the car financed for 72 months or more?
  • Have you leased a high-end car or a very luxurious car that can depreciate rapidly?
  • Are you leasing the car that you have bought?

If you have answered positively for any of the above questions, then you will surely need gap insurance for your leased car.

Who Offers Gap Insurance?

Quite plain and simple, there are many insurance companies that offer gap insurance for leased cars, while many others don’t. Check with an insurance agent or the showroom where you bought the car.

Be sure to read the terms and conditions as there can be limits for payment or mileage for gap insurance. Gap insurance for leased cars will also last for the entire term of the lease that you have taken unless you choose to cancel it.

An Example of a Case Where Gap Insurance is Needed

If you have leased a car at a selling price of $20,000 and after 2 years the car is totalled, the insurance company may pay for the actual cash value of the car. Let’s say that the actual value as per the insurance company comes to $14,000. However, the payoff amount is $16,000 in the books of the finance company. The difference of $2,000 would be paid by the gap insurance.

What About Car Insurance For Leased Cars?

Saturday, April 24th, 2010

Many people would prefer to drive a leased car for just two or three years before changing it out for a new one. For this reason, car insurance for leased cars is something these drivers must secure.

Car insurance for leased cars has some mandatory requirements in some form or the other in all states of the U.S. The driver is responsible for liability auto insurance. In fact, this kind of insurance is mandatory in many states. Please check the mandatory requirements for car insurance for leased cars in your state.

Collision and comprehensive insurance policies need to be bought for leased cars.

The car dealerships and finance companies require drivers to purchase collision coverage as well as comprehensive insurance when purchasing car insurance for leased cars. Comprehensive insurance for leased cars will protect lessees financially against theft, vandalism, and strikes by animals or natural calamities and disasters. Collision coverage is part of the car insurance for leased cars that saves the driver from paying damages when the driver and the car have been involved in the accident.

Car lenders and dealerships require that the car is fully insured since the driver doesn’t own the car. If the lessee don’t cover the car fully, in case of accidents, the car dealership is liable to pay for the damages.

Purchasing Gap Insurance

People who obtain car insurance for leased cars also purchase gap insurance. However, gap insurance isn’t part of comprehensive insurance. Gap insurance is the difference that the insurance company will pay when there is an accident and there is an outstanding payoff amount on the car. Cars depreciate by as much as 20-30% within the first 3 months after purchase. The outstanding payoff amount can be equal to the value of the car. If you have leased a new car that has cost $20,000, the value after 3 months would be $16,000 (considering 20% depreciation). This is the amount that the insurance company would pay. However the payoff amount would still be $20,000. The insurance company would also pay the difference of $4,000 if the driver had purchased gap insurance.

Usually gap insurance details are a part of car insurance for leased cars. The lessee is also charged a GAP insurance waiver. This enables the lessee to escape any responsibility in making a payment for the gap amount to the car dealership in case the car meets with total accident.

You will need to make payments on your leased vehicle even after an accident.

In cases of an accident, you have to continue to make payments on your car until the lien holder receives the money from the insurance company. If you ever stop, it’s quite possible that you could default on your lease. If this default happens, then you can be sure that there will be an ugly mark on your credit report. This could create problems in the future, when you wish to lease your second car or even purchase a new car.

Scrutinize The Car After Accidents

If the insurance company, from whom you have taken the car insurance for leased cars, decides to repair the car instead of totalling it, check that repairs have been done using OEM parts, the paint and tires match, and it’s in working condition as when you drove it from the dealership. In case parts or paints don’t match, you can be in for trouble with the car dealership from whom you bought the car.

Leased car insurance is something to be sure to get. Remember to secure collision, comprehensive, and gap insurance for your leased car to be fully protected from loss should damage happen to your vehicle.