According to Carfax, cars can lose more than 10% of their value during the first month after you drive it off the lot. According to current depreciation rates, the value of a new vehicle can drop by more than 20% after the first 12 months. So, what happens if you get into an accident and you owe more than what your car loan is for? That’s where Loan/ Lease Payoff Coverage can help.
What is Loan/Lease Payoff Coverage?
If your car is totaled and you are “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%) if your car has been totaled in an accident or it’s been stolen. This coverage is beneficial to carry on your policy if you are currently making payments on or leasing your vehicle.
Loan/lease 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 differences:
|Loan/Lease Coverage</strong||Gap Coverage|
|Does not cover deductibles||Typically covers deductibles|
|Pays only up to 25% of the car’s Actual Cash Value(ACV)||Pays the difference between the car’s Actual Cash Value (ACV) and the loan balance|
Should I purchase Loan/ Lease coverage?
Something important to note is that you must have comp and collision on your policy to have loan/lease payoff. But it can be a very useful coverage to have, even if it doesn’t cover everything you owe.
Talk to a licensed Elephant Agent to help determine the best coverage for you—they might see benefits to you having it that you’ll miss on your own. But even if you get an agent’s help, always feel comfortable enough to ask questions if you don’t understand! Our agents are here to help, and love answer any and all questions. It’s important to feel confident in your coverage and knowing how it works.