Tips on Buying Cars: Gap Insurance on Leased Vehicle, gap insurance, maximum payout

Question
I am in the process of leasing a car and the dealer is trying to talk us into purchasing GAP Insurance. We have leased in the past and have never heard of this...our insurance agent says that he assumed it was factored into the total price of the lease.  The dealer is quoting a one time fee of $195 (this is in New York State).  What is your suggestion on purchasing this insurance??

Answer
Becky,

The payout of Gap Insurance compared to the cost of the $195 fee is extremely good.  I always recommend Gap insurance to my customers unless you are putting a significant amount of money down say $7000 plus.  Gap Insurance is a no brainier for most consumers, especially based on the cost.  Gap Insurance does this:

In the event of a total loss declared by YOUR insurance company, your insurance company ONLY has to pay what the vehicle is worth, not what you owe on the vehicle.  A vehicle is a highly depreciating asset.  It depreciates at a faster pace than you pay it down.  This means that if you owe more on the vehicle than it is worth in the event of a total loss, you are responsible for whatever is left to pay the lien in full to the lender.  Gap Insurance pays that difference with no money out of pocket.  Most Gap policies have a $25,000 maximum payout.  The average negative equity that a consumer has on an auto today is $6584.  That means that if you owed $6584 more than what your insurance company gave you for the vehicle, you are responsible for that money immediately to make the lien whole, or pay it off.

I would buy it, especially if they are offering it for only $195.

Hope this helps.

Thanks - Jb