Whether you are leasing or buying a car, you will be required to carry an auto insurance policy that includes collision and comprehensive coverage, as well as an acceptable deductible. However, when it comes to leasing a vehicle, there is a risk you may not be aware of: The gap.

If your insured vehicle is damaged in an accident and it is determined to be a total loss, the insurance company will pay an amount equal to the actual cash value of the vehicle. However, the lease balance can be higher—sometimes thousands of dollars higher—than the insured value, because the most significant depreciation occurs the moment you drive the vehicle off the lot and during the first few years. This difference represents the gap, which typically becomes your responsibility to pay. This is what gap insurance is designed to cover.

Creditors and lessors have the option to not hold you responsible for the gap, but often, you will have to either assume responsibility for the gap or pay an additional charge to waive it. As your independent insurance agent, we may be able to find affordable gap insurance—quite possibly for less than coverage through the lessor (although this option is not available in New York).

And, while the gap risk is more common with leased vehicles, gap coverage isn’t just for leases. If the vehicle is purchased with a minimal down payment, or no down payment, the same gap may occur when the value is less than the loan balance. If you’re car shopping, drop by our office or give us a call, we can help you figure out your best course of action.