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What's the difference between gap insurance and loan/lease payoff coverage?
I bought a car last week, and I’m considering adding gap insurance to it, but I was also told to look into loan/lease payoff coverage. What’s the difference?
Shannon Martin · Updated on
Reviewed by Shannon Martin, Licensed Insurance Agent.
Gap insurance
and loan/lease payoff coverage sound similar—and many companies use these terms interchangeably—but some minor differences make these policies unique.Here’s a breakdown of each.
Gap insurance:
- Covers the difference between your collision/comprehensive insurance payout (theactual cash valueof your car) and your outstanding loan balance if your car is totaled or stolen
- Usually must be purchased within 30 days of buying the vehicle
- Must be the car’s first owner
- Vehicle must not be older than 2-3 model years
Loan/lease payoff coverage:
- Covers a specific percentage (usually 25%) of the vehicle’s actual cash value minus your deductible if your car is totaled
- Can be purchased at any time
- More flexible than gap insurance
Although both types of coverage help cover an outstanding loan ift your car is deemed a total loss, gap coverage generally covers a greater amount, reducing the likelihood of out-of-pocket expenses.
View full answer
- Gregory R.
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