Lease off coverage, also known as GAP coverage or GAP insurance is a type of insurance policy that covers the difference between the cost of paying off a car lease and the amount covered by other insurance coverage, when a vehicle is damaged or stolen during the term of the lease. Lease off coverage was established in the early 1980s to provide protection to consumers, as a result of rapidly escalating cost of cars, the introduction of longer term auto loans and a rise in the take up of leasing vehicles.
When someone purchases a car there may be a period afterward when the amount owed on the car loan is greater than the value of the vehicle, due to the fact that a car depreciates in value steeply immediately after it has been bought. This is called negative equity. If the car is in an accident at this point, and is damaged beyond repair, the owner of the vehicle will still owe the full cost of the loan. Lease off coverage provides protection for the duration of this ‘gap’; many policies will cover the deductible on the primary insurance policy also.
Lease off coverage is often offered at a relatively low cost ‘add on’ to the car loan at auto dealerships. It is important to note, however that lease off coverage does not always pay off the full value of the loan. Circumstances that would not be covered include: any unpaid delinquent payments due at the time of loss; payment deferrals or extensions; refinancing of the vehicle loan after the policy was purchased, or late fees other administrative fees levied after the loan has commenced. It is important, therefore, to be aware that monies may still be owed on the loan even though lease off coverage was purchased.
Consumers should also be aware that a few states have passed laws stipulating that providers of loans for lease cars have to include lease off coverage within the cost of the lease itself. Effectively this means that the monthly price which is quoted must include lease off coverage. Unfortunately, some unsavory dealers will take advantage of unsuspecting people by offering lease off coverage at an additional price, on top of the monthly payment without mentioning the requirements of the state. So it’s important to do your own research beforehand.
As with other insurance policies, it’s worthwhile shopping around to find the best deal.