What Is Gap Insurance When Leasing a New Van?
The purchase of gap insurance when leasing a new vehicle, such as a van, should be seriously considered. Gap insurance is a supplement to regular vehicle insurance to protect the lessee against a significant financial loss.
Gap insurance is supplemental to the regular insurance on a leased van.
Gap insurance is an additional insurance policy that pays the difference, or gap, between what the regular insurance pays and the payoff on the van lease if the van is demolished in an accident or stolen.
Payments on a lease contract reduce the pay off amount of the lease at a very slow rate. If the van is totaled there may be a significant difference between what insurance pays and the cost to pay off the lease contract.
A new van will depreciate as soon as it is taken off the dealer’s lot and will continue to decline in value. The Bankrate.com website notes the average vehicle will lose 30 percent of its value in the first year. A lease contract is usually entered with a low or no down payment, providing no equity cushion to cover the inevitable depreciation.
The result is a van that is worth significantly less than the pay off of the finance contract if the contract must be terminated early. This situation is called being “upside down” in the vehicle and can be thousands of dollars.
Regular Vehicle Insurance and Gap
Regular vehicle insurance will only pay the market or replacement value if the vehicle is demolished in an accident. When the van is lost by accident or theft, the lease contract will have to be paid off.
The insurance amount will usually not be enough to pay the contract, leaving the balance to be paid by the van lessee. A gap insurance policy will pay the difference the regular insurance does not pay, including the deductible amount on the vehicle insurance.
Buying Gap Insurance
Gap insurance is usually bought at the dealership when the lease contract is completed. The dealer finance department will offer the gap insurance and be able to roll the cost into the lease payment. It is also possible to buy the gap insurance from an outside or online vendor. This insurance can be purchased after the lease contract is in effect.
It may be a good idea to get a price on gap insurance before going to the dealer and use that information to negotiate a competitive price for the insurance from the dealership.