Insuring a Leased Car

The leasing company may also require gap insurance. If you have an accident and your leased car is damaged beyond repair or “totaled,” there’s likely to be a difference between the amount you still owe the auto dealer and the check you’ll get from your insurance company. That’s because the insurance company’s check is based on the car’s actual cash value, which takes depreciation into account. The difference between the two amounts is known as the “gap.”

The cost of gap insurance is generally rolled into the lease payments on a leased car. You don’t buy a gap policy. Typically, the auto dealer buys a master policy from an insurance company to cover all the cars it leases and charges you for a “gap waiver.” If your leased car is totaled, you won’t have to pay the dealer the gap amount. Check with the auto dealer when leasing your car.

If you have an auto loan rather than a lease, you may want to buy gap insurance to protect yourself from coming up with the gap amount if your car is totaled before you’ve finished paying for it. Ask your insurance professional about gap insurance; it may not be available in some states.