What Is A Loan/Lease Gap Endorsement?
Some gaps are simply an aggravation, like that space between your stove top and the counter top where bits of food get trapped or that gap in your kitchen floorboards that is a magnet for dirt.
But other gaps can be far more detrimental. A potentially costly gap can occur in your auto insurance coverage when the market value of your car is worth less than what you owe on your lease or loan.
If you get in an accident or your car is stolen, and this gap exists, then you could be on the hook for the difference between what value your insurance carrier gives your car at the time of your claim and what you still owe to your lender, which might be thousands of dollars.
The good news is that the gap in your auto insurance coverage can be fixed with a simple addition to your policy called a loan/lease gap endorsement.
What is a loan/lease gap?
Most people borrow money from a lender in order to buy or lease their vehicle. If you took out a loan for your current vehicle or are considering borrowing to afford the new car you want, then beware of the loan/lease gap.
This gap is the difference between the market value of your car today and the amount you still owe your lender. On normal days, this gap doesn’t cause you too many issues; in fact, you’d probably never even know it was there. However, in the event you have an out-of-the-ordinary day – one in which you experience a terrible car collision – then this gap could rear its ugly head.
Here’s a potential real-life situation that illustrates why the loan/lease gap can sometimes cause more anguish than the actual car crash:
You took out a loan from your bank to pay for this $45,000 vehicle, and you’ve made a couple of payments so far. You’re a few steps closer to owning this beauty outright in five “short” years.
But now, imagine you get into an accident – a really bad one, with multiple cars involved. You’re fine, as are all the other drivers, but your cherished new automobile looks like a total loss. You tell yourself that it’s all going to be okay because you have car insurance and your carrier will cover the cost of replacing your vehicle.
Things go smoothly at first…Your local insurance professional is very helpful and lets you know that your carrier is going to pay you the current market value of your BMW. This amount is the original price you paid – $45K – minus depreciation of about 10% to date (or $4,500). That means you’re likely to get a check for roughly $41,500.
There’s just one issue. You took out a loan for $45,000, and your bank is going to expect that money from you – less a couple of months of payments.
You’re realizing that there is essentially a $4,500 difference between what your insurance carrier is paying out and what you owe the bank.
Starting to see how this could all be problematic for you? If you don’t want to get stuck paying thousands of dollars out of your own pocket in this type of scenario, then you probably want to consider adding coverage to your auto insurance policy that closes the loan/lease gap, called a Loan/Lease Gap Endorsement.
Is loan/lease gap insurance coverage right for you?
As its name suggests, a loan/lease gap endorsement will provide coverage for the gap between how much you owe on your car and how much it is worth at the time of your claim.
While gap insurance could bring peace of mind to any driver who took out a loan for their vehicle, it is an especially wise idea if any of the following conditions apply to your car situation:
- Your down payment on your car was 20% or less of the loan amount
- You financed your vehicle for 60 months or longer
- You purchased a vehicle that depreciates faster than the average
- You lease your car
If one or more of the conditions above describes you, your vehicle, or your loan, then it would be worthwhile to have a conversation with a local insurance professional, like Gilbert. We will not only help you to determine if gap insurance is a good option for your specific situation but also evaluate whether you meet the loan/lease gap eligibility requirements set forth by most insurance providers.
Most important, the Gilbert team will make sure that you clearly understand what your gap endorsement will cover, and what it won’t. For example, most of our insurance partners will only pay up to a maximum limit of 25% of the market value of your car at the time of your claim. While this is generally plenty of money to cover any loan/lease gap that may exist, it’s critical to know that this payment will come to you minus the following:
- unpaid finance charges
- excess mileage charges or charges for wear and tear
- charges for extended warranties
- past due payments and charges for past due payments
- carry-over balances from previous loans or leases
- collection or repossession expenses
As your insurance partner, Gilbert will make sure to share all of the details about loan/lease gap insurance upfront so that, should you have an accident or if your car is stolen, you can hopefully avoid any unanticipated out-of-pocket expenses.
Finally, you’ll, of course, want to know how much you’re likely to pay for a loan/lease gap endorsement. You will be pleasantly surprised at how affordable it is. Gilbert Insurance works with a variety of top-quality carriers who offer this extra financial protection to you for as little as $30 per year (or less than $3 per month). Plus, this type of coverage is generally very flexible, so if you bought your car months ago, but are just now finding out about this insurance option, no worries. We’ll still be able to find you excellent loan/lease gap coverage – or a collection of extended coverage options – that we can add to your auto insurance policy today.
Please contact Gilbert Insurance today to learn more about loan/lease gap insurance, and other auto insurance options, such as disappearing deductible, rental car reimbursement coverage, or accident forgiveness, that may save you time, money and stress.
