It’s common knowledge that drivers need auto insurance to legally register and operate their vehicles, but crafting the right policy to fit your needs and budget can be challenging, especially for drivers who are leasing or financing their vehicles. Along with the state mandated minimum coverage requirements, auto dealer or and financial institutions often require motorists to attain extra coverage designed to help protect their investment. The vast majority of vehicle leases will require the driver to purchase collision and comprehensive coverage, and in some cases “gap” coverage may be necessary as well.
Auto collision coverage is designed to ensure the necessary funds to repair or replace a vehicle should it become damaged in an accidental collision with another automobile or object. Comprehensive insurance is designed to cover a loss that is caused by something other than a collision with another car or object, such as a fire, theft, vandalism or natural disasters. Both of these policies are designed to protect the vehicle, not the driver or other injured parties. Leasers often require such coverage because a leased vehicle is still their property and they wish to protect their investment.
Gap coverage, is designed to mitigate any losses that are associated with the difference between a claim pay out and the actual cost. For example, if a leased vehicle is involved in an accident the vehicle becomes damaged beyond repair, known as "totaled," there's often a difference between the amount still owed on the vehicle to the auto dealer and the claim payout check issued by a driver’s insurance company. The reason for this is because the insurance claim payout is based on the vehicle’s Actual Cash Value. Actual Cash Value is a calculation made by insurance adjusters which takes into account the depreciation of a vehicle. The difference between these two amounts is known as the "gap”
An auto dealer will generally charge the lease for a "gap waiver" which absolves the lease holder of any financial responsibility to repay the dealer the gap amount, as they will file a claim for their losses through their own insurance policy. Financed vehicle owners however, might want to add gap coverage to their auto insurance policy to protect themselves from having to come up with the gap amount if the vehicle is totaled before it is paid off.
Please contact Fleming & Riles Insurance today to learn more about our auto insurance policies and other products we offer at (229) 436-3408.