Top Reasons To Buy Loan Lease Coverage

Auto loan lease coverage―also known as gap insurance― is a type of auto insurance coverage that covers the gap between the worth of your vehicle and the amount you still owe on a vehicle, in the event of theft or a total loss accident. Loan lease coverage is the only type of insurance coverage that will cover this gap; collision and comprehensive insurance will only cover what the vehicle is worth.

 

Vehicle Worth vs. Loan Amount

Regardless of the amount you finance in order to drive a vehicle home or costs associated with your car lease, it might surprise you to learn that many vehicles depreciate in value up to 30% within three months. For example, say you buy a new car for $15,000. Within three months, you "new car" could only be worth $10,500.

Now lets say you’re involved in a head on collision and the vehicle is totaled. Let us also say that you still $14,000 on the vehicle, though the vehicle is now only worth $10,500. Having collision insurance helps, but if you have auto loan lease coverage, your loan lease policy will cover the $3,500 difference between what you still owe and what the car is worth.

On the other hand, if you do not have loan lease coverage, you will have to continue paying on a loan for a car you no longer have.

 

Obtaining Loan Lease Coverage

An auto lien is the contract that verifies a lender’s hold on the vehicle. Loan lease coverage is typically offered at the time of negotiating an auto lien, you can also purchase it from an online vendor or car insurance company up to one year after you purchase the car. Obtaining gap coverage from an insurance company is the better choice for the following reasons:

• It is typically less expensive.

• You can pay every six months, as opposed to paying in full at the time of purchase.

• You can cancel the coverage, once you no longer owe more than the vehicle is worth.

You can compare rates online, or by contacting the Insurance Department in your state. Online vendors require you to pay a one time fee when you purchase the policy, but auto dealerships require you to maintain gap coverage for the life of the loan. Auto dealers also include an administrative fee in the coverage contract.

 

Loan Lease Coverage Exemptions

Loan lease coverage is applicable to motorcycles, new cars, used cars, and leased vehicles. There are, however, a few exceptions to what gap coverage will cover, to include:

• Towing expenses.

• Repair expenses for preexisting damages.

• Rental fees.

• Interest fees.

• Overdue leases.

• Service agreements.

• Carry-over balances from preexisting loans or leases.

• Equipment installed after the vehicle has left the factory floor.

• Storage fees.

• Credit insurance.

When you shop for auto loan lease coverage, be sure to inquire about the policy exceptions, in addition to the existence of a mandatory arbitration clause. A mandatory arbitration clause will prevent you from recovering disputed funds, in the event of a lawsuit. For this reason, you want to avoid a mandatory arbitration clause at all costs.