Gap Insurance

June 13, 2014

When leasing a car, it is important to understand that most insurance companies will only cover the "book" value of a car. Unfortunately, the book value of a vehicle drops significantly once it is driven off the car lot. Thus, the difference between the amount the insurance will cover and the amount the consumer owes under their lease agreement can be thousands of dollars.

Consumers can buy "gap" insurance to cover the difference. It can be purchased separately or be included in your monthly lease payment. The "gap" is the amount the lessee owes under the early termination clause of the lease if the car is stolen or totally destroyed. This gap can be thousands of dollars higher than the car's book value. Motor vehicle gap insurance can cover the lessor, the lender or the borrower.