Lease Gap Insurance
Specialized auto insurance coverage that pays the difference between what you owe on a leased vehicle and its actual cash value if the car is totaled or stolen. This coverage protects lessees from having to pay thousands of dollars out-of-pocket when the lease balance exceeds the vehicle's depreciated value.
Example
“When Maria's leased BMW was totaled six months after signing, lease gap insurance covered the $8,000 difference between the insurance payout and her remaining lease obligation.”
Memory Tip
Think 'Lease GAP = Lease Grab All the Problems' - it grabs all the financial problems when your leased car is totaled.
Why It Matters
New vehicles depreciate rapidly while lease payments are based on the original value, creating a significant financial gap in the first years of a lease. Without this coverage, you could owe thousands of dollars on a vehicle you can no longer drive, potentially derailing your finances.
Common Misconception
Many lessees assume their regular auto insurance or the leasing company will cover any shortfall if their vehicle is totaled. Standard auto insurance only pays actual cash value, and leasing companies still expect full payment of the lease balance, leaving consumers responsible for potentially substantial gaps.
In Practice
Tom leases a $45,000 SUV with $40,000 remaining on his lease after one year. The vehicle is stolen and the insurance company declares it a total loss, paying $32,000 (the actual cash value). Without lease gap insurance, Tom owes $8,000 out of pocket. With lease gap coverage costing $300 annually, the insurance pays the entire $8,000 shortfall, saving Tom from this unexpected financial burden.
Etymology
Developed in the 1980s as vehicle leasing became popular, combining 'lease' (from Latin 'laxare' meaning to loosen) with GAP (Guaranteed Asset Protection) insurance concepts.
Common Misspellings
Compare insurance quotes and save
Related Terms
More in insurance
Other insurance terms you should know
See Also
Need help with spelling?
Instant spelling checker with dialect variants for 2,000+ words.