Loan/lease payoff coverage

Cars depreciate quickly as soon as they are driven off the lot. In 2021, Carfax published an article estimating that vehicles could lose 10% of their value in the first month of ownership, and new vehicle values can decrease by about 20% in the first year. So, what happens if you get into an accident that totals your car, but the actual cash value of your car is less than what you owe on your car loan? That’s where loan/lease payoff coverage can help.

What is loan/lease payoff coverage?

If your car is totaled or stolen and you’re “upside down” or “underwater” on your loan (terms for when you owe more than the value of the car), then loan/lease coverage can help offset the remaining amount due on the loan/lease (up to 25% in most states). This coverage is beneficial to carry on your policy if you’re currently making payments on or leasing your vehicle.

Uninsured motorist insurance can help repair damage to your vehicle in a hit and run accident

What loan/lease payoff insurance doesn’t cover

Loan/lease payoff will not pay for:

  • Your comprehensive or collision deductible
  • Any overdue loan/lease payments at the time of the loss
  • Financial penalties imposed for excessive loss, abnormal wear & tear, or high mileage
  • Security deposits not refunded by a lessor
  • Cost of extended warranties, credit life, health, accident, or disabilities
  • Carry-over balances from other loans
  • Cost of service contracts

Another thing that loan/lease coverage isn’t? It’s not GAP insurance. They’re easy to confuse, especially when some insurers lump GAP and loan/lease coverage together as one product. They aren’t the same, however, and have a few subtle but important differences:

Loan/lease coverage Gap coverage
Doesn’t cover deductibles Typically covers deductibles
Pays only up to 25% of the car’s Actual Cash Value (ACV) in most states Pays the difference between the car’s Actual Cash Value (ACV) and the loan balance

Should I add loan/lease payoff coverage?

To avoid owing more than the car is worth after an accident, loan/lease payoff coverage can be very helpful, even if it doesn’t cover the full loan balance. Something important to note is that most insurers require you to have comprehensive and collision coverage on your car insurance coverage to have loan/lease payoff coverage.

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Frequently asked questions about loan/lease payoff

The following questions provide information about loan/lease payoff insurance.


Do I need loan/lease payoff insurance?


If you are currently making payments on or leasing your car, consider talking to your insurance provider about loan/lease payoff coverage. You may also want to check the terms of your loan or lease, as some institutions may require it.

Why should I not get loan/lease payoff?


If your car is fully owned by you or if you are confident that it is worth more than your remaining loan balance, there may be no need for you to consider getting loan/lease payoff coverage.

What is the difference between loan/lease payoff and GAP insurance?


While easy to confuse, loan/lease payoff insurance isn’t the same as GAP insurance. They have a few important differences:

  • Loan/lease coverage doesn’t cover deductibles and pays only up to 25% of the car’s Actual Cash Value (ACV) in most states.
  • GAP insurance typically covers deductibles and pays the difference between the car’s Actual Cash Value (ACV) and the loan balance.

If I have GAP Insurance, do I need to add the loan/lease payoff option when buying insurance?


If you already have GAP insurance, you may not need to add loan/lease payoff coverage because GAP insurance usually covers the remaining balance on your loan/lease if your car is stolen or totaled. Review the terms and conditions of your GAP insurance policy to understand its coverage limits and any exclusions.

Balance your debt with loan/lease payoff insurance!

Talk to a licensed Elephant agent or use our Coverage Wizard to help determine the best coverage for you — a licensed agent can help determine benefits of certain coverages that you may miss on your own. When getting an agent’s help, always feel comfortable enough to ask questions! Our agents are here to help you learn about car insurance and love to answer any and all questions. It’s important to feel confident in your loan/lease payoff coverage and know how it works.

Leasing a car vs. buying a car  

How do car loans work?  

How do I get insurance on a leased car?  

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