If your vehicle is declared a total loss after an accident, and you still owe money on your car loan
or remaining lease payments, there’s a good chance your insurance company will not pay off the
entire amount you owe.
This happens because insurers base their pay off amount on what they determine to be the
“actual cash value” of your car.
Almost without exception, the payment offered for your totaled vehicle based on its actual cash
value will be far less than what’s needed to entirely pay off your car loan or lease agreement.
But not all insurance products designed to fill the gap in vehicle coverage work the same way.
Common variations such as
Gap vs Loan Lease Payoff
The main difference between Loan Lease Payoff and Gap Insurance is whether your deductible is
included in the coverage or not. Most major insurers who offer true gap insurance will cover the
deductible up to $1,000.
For instance, Commerce Insurance, my personal auto insurance company here in Massachusetts is
one such company whose gap rider covers the deductible amount.
On the other hand, “Loan/Lease Payoff” coverage offered by Progressive Insurance, for instance,
does not.
Hot Tip: Certain states like New York require loan/lease payoff coverage for leased vehicles and
the amount is already included in the monthly lease payment.
Gap vs Total Loss Coverage
Another major difference between Gap Insurance and similar types of coverage is how the
settlement is paid.
In the case of gap insurance the money is paid directly to the loan or leasing company which
leaves you free and clear (in most cases) to immediately go out and buy a new car.
However, many “Total Loss Coverage” plans provide a credit toward the purchase of a new
vehicle instead of paying off the balance due. This means you are still responsible to the financial
institution for the shortfall.
This could prove frustrating knowing you have, let's say, $3,500 available towards the purchase of
a new car but can't use it until you pay off the $3,500 you still owe on the old car. And here's
something else to consider - what happens to your $3,500 if you don't want to buy another car?
If you're interested in true gap insurance check out the Gap Insurance Providers page for the
least expensive option.
or remaining lease payments, there’s a good chance your insurance company will not pay off the
entire amount you owe.
This happens because insurers base their pay off amount on what they determine to be the
“actual cash value” of your car.
Almost without exception, the payment offered for your totaled vehicle based on its actual cash
value will be far less than what’s needed to entirely pay off your car loan or lease agreement.
But not all insurance products designed to fill the gap in vehicle coverage work the same way.
Common variations such as
Gap vs Loan Lease Payoff
The main difference between Loan Lease Payoff and Gap Insurance is whether your deductible is
included in the coverage or not. Most major insurers who offer true gap insurance will cover the
deductible up to $1,000.
For instance, Commerce Insurance, my personal auto insurance company here in Massachusetts is
one such company whose gap rider covers the deductible amount.
On the other hand, “Loan/Lease Payoff” coverage offered by Progressive Insurance, for instance,
does not.
Hot Tip: Certain states like New York require loan/lease payoff coverage for leased vehicles and
the amount is already included in the monthly lease payment.
Gap vs Total Loss Coverage
Another major difference between Gap Insurance and similar types of coverage is how the
settlement is paid.
In the case of gap insurance the money is paid directly to the loan or leasing company which
leaves you free and clear (in most cases) to immediately go out and buy a new car.
However, many “Total Loss Coverage” plans provide a credit toward the purchase of a new
vehicle instead of paying off the balance due. This means you are still responsible to the financial
institution for the shortfall.
This could prove frustrating knowing you have, let's say, $3,500 available towards the purchase of
a new car but can't use it until you pay off the $3,500 you still owe on the old car. And here's
something else to consider - what happens to your $3,500 if you don't want to buy another car?
If you're interested in true gap insurance check out the Gap Insurance Providers page for the
least expensive option.
Gap Auto Insurance vs Loan/Lease Payoff & Total Loss Coverage
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