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.