What's the difference between gap insurance and loan/lease payoff coverage?
These coverages sound pretty similar to me on the surface. How do they work?
“Gap insurance and loan/lease payoff coverage do sound very similar, and some companies use the terms interchangeably. It is important to read the fine print on the coverage you carry because they can be very different!
Gap insurance generally needs to be purchased within the first 30 days of owning a car. If you have exceeded this time limit, some carriers offer gap coverage if you are the car’s first owner and if the car is no older than two or three model years.
Gap insurance will kick in if your vehicle is deemed a total loss. It pays for the difference between your insurance company’s actual-cash-value payout and the remaining balance on your loan, plus the deductible.
Loan/lease payoff coverage will also be activated in the event of a total loss. However, it usually only pays up to 25% of the actual cash value of your car, minus the deductible.
Depending on the balance of the loan, you may be left with an out-of-pocket expense with loan/lease payoff coverage. With gap insurance, that is far less likely to happen. “
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