GAP Insurance
Also known as: Guaranteed Asset Protection, GAP Coverage, Lease GAP
GAP insurance covers the difference between what you owe on a lease and what the vehicle is worth if it is totaled or stolen. Most lease contracts include GAP coverage at no additional cost.
How GAP Insurance Works
In a lease, you may owe more than the car is worth (especially early in the term) because the lease balance includes the residual value, fees, and finance charges. If the car is totaled, your auto insurance pays the market value — but this may be less than the lease payoff amount. GAP insurance covers that "gap." Most manufacturer leases include GAP automatically. If yours doesn't, purchasing it from your insurance company ($20-40/year) is cheaper than buying from the dealer ($500-700).
Example
Car totaled with $35,000 remaining on lease. Insurance pays $30,000 (current market value). GAP covers the $5,000 difference so you owe nothing to the leasing company.
Frequently Asked Questions
Is GAP insurance included in a lease?
Most manufacturer lease programs include GAP insurance at no extra cost. Check your lease contract — if it's not included, purchase it from your auto insurance company ($20-40/year) rather than the dealer ($500-700).
Do I need GAP insurance if I lease?
Yes. GAP insurance is important for leases because you typically owe more than the car is worth early in the lease term. If the vehicle is totaled, GAP covers the difference. Most leases include it automatically.
Related Lease Terms
The capitalized cost is the total amount being financed in a lease — the lease equivalent of a purchase price.
Residual ValueResidual value is the projected worth of a leased vehicle at the end of the lease term, expressed as a percentage of MSRP.
Due at SigningDue at signing (DAS) is the total upfront payment required when signing a car lease.
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