QuestionI am considering leasing a car instead of buying and understand my responsibility to carry insurance. However, my salesman wants me to purchase an additional Guaranteed Auto Protection Insurance Policy(at the cost of $500). It supposedly will cover the difference between the CASH VALUE determined by my insurer and the CASH VALUE determined by the leasee, if the car is totaled or stolen. The policy states that the leasee will use the NADA Official Used Car Guide to determine the value. 1) Is that different than what my insurance company will use to value it? and 2) In your opinion, is it a good idea to purchase the addtional insurance or is it a scam?
Thanks so much for helping me wade through all this sales talk.
Mary
AnswerGAP coverage is recommended by many experts on a new car for consumers who lease a vehicle.
Anyone in these circumstances could be "upside down," meaning they owe more on the car than it is worth. Car buyers aren't aware they're upside down until they're faced with the total loss of their vehicle. I have GAP coverage but have never used it.
Fortunately, most lease contracts already include GAP coverage, but check to be sure it's in the lease agreement. Your existing auto insurance policy may also pay off the "fully financed amount," provide "full replacement cost" or "new car replacement" if your car is stolen or totaled. If so, then you don't need to buy GAP coverage. But be sure to read the terms and conditions of your primary (main) auto policy — there may be time or mileage limits on its GAP coverage.
Types of Coverage
Although it can go by various names, GAP coverage is generally divided into three categories:
GAP Insurance: can be offered only by a licensed agent. Several major insurance companies don't offer GAP insurance at all, but others will offer you GAP coverage even if they don't hold your primary auto policy. Lee & Mason Financial Services, which underwrites most of the nation's GAP policies, is the only company offering GAP insurance policies directly to the consumer through the Internet, at InsuranceQuotes.com. This is an attractive option because it cuts out the middle man and can save you money.
GAP Waiver: is an agreement between a dealer or lender and a borrower (you) to waive the difference between the ACV and the loan balance. The waiver should be backed by an actual insurance policy. Bear in mind that if you add a GAP waiver payment to your auto loan, you'll also be paying interest on it.
GAP Endorsement: If your primary auto insurance policy doesn't include a provision to cover the gap, your insurance company may be able to add a rider, or amendment, to include it in the policy.
Some insurance companies offer "loan/lease payoff coverage." This is different from insurance because it pays out only a fixed percentage of the ACV, so it won't cover the gap.
The cost of GAP insurance depends on a variety of factors, and it is important to comparison-shop for the policy to get a good price. Below is a simplified listing of GAP coverage sources:
GAP Insurance: Available at Gapinsurancequotes.com; price is $349, except six states.
GAP Waiver: Available at a dealer or lender; price is approximately $500 - probably not worth it
GAP Endorsement: Available in all states; price varies; check your policy.
GAP coverage generally lasts for the life of the loan unless you cancel it. GAP insurance and endorsements can be canceled if you no longer need the coverage, just like any other part of your insurance policy. For GAP waivers, it depends on your state. Some states don't allow cancellation after 30 or 60 days, while others allow you to cancel any time during the loan and will even apply a prorated refund to your outstanding balance. For cancellation details, ask the salesperson or your state's insurance department.
It's smart to buy GAP coverage as soon as you purchase a vehicle. However, you can still buy GAP insurance up to 12 months (or sometimes 15,000 miles) later. It's available on most new, certified pre-owned, refinanced and used vehicles up to 8 years old, though most cars older than a few years won't need it. GAP coverage is not transferrable to another person, vehicle or loan.
What To Watch for
Because the insurance industry is highly regulated, there aren't a lot of problems associated with claims on GAP insurance. But there may be some red flags during the purchase process:
* Don't believe a dealer who says GAP insurance must be purchased when you buy the vehicle — that's only to put more money in his pocket.
* Some dealers have been known to push GAP coverage without checking if your primary insurance policy already includes it — causing consumers to pay for something they don't need.
* Ask whether your GAP coverage includes paying off your primary auto insurance deductible.
* Although it's rarely an issue, beware of coverage that uses language like "total loss replacement" or offers to pay out "the greater of" two numbers; these offerings could still leave you on the hook for part of the loan balance.
GAP coverage is like any other type of insurance: You hope you'll never have to use it, and you won't get your money back if you don't. But if your car is totaled or stolen early in its lifetime, that few hundred dollars spent up front could save you thousands and a lot of headaches.
Best of luck,
Ernest Ferraro
http://www.ferrarofirm.com
