| The
dramatic plummet of your car's value as soon as you drive it off the dealer's lot can put surprising and undue strain on your wallet if your car is totaled. The amount your insurance company calculates as your car's actual
cash value
can be sta
cks of bills away from what you still owe on your car
lease or loan. Since you're responsible for paying
the remainder of your lease or loan even when your
car is totaled, you might have to come up with hundreds
— maybe even thousands — in cash.
Unless you have gap insurance.
Gap
insurance pays the difference between the amount your
insurer pays for
your totaled car and the amount you owe on your lease or loan. Many
car lease contracts include gap insurance and require
you be in total compliance with the lease in order
for the gap coverage to pay out. Ford's Red Carpet
lease, for example, requires you to continue making
your regular monthly payments until Ford r
eceives the gap insurance payment. The cost of the gap insurance when you lease is built into the agreement, so you need not make a special trip to your auto insurer to request it. The Loan Gap
If
you decide to finance your vehicle through a bank,
you'll likely not have a
contract that provides you with automatic gap insurance.
Many auto insurers sell gap
insurance but, curiously, they don't advertise the
fact. And some of the biggies don't sell it at all.
GEICO and State Farm Mutual Automobile Insurance Co.,
for example, don't sell it. Why? Could be that policyholders
aren't beating down the doors for gap
coverage. Could be that not everyone who owns a car needs gap insurance. Could be that the leasing companies have filled the void in their own contracts.
"We
don't see a big need for it, but we're going to offer
it because
we don't want to be ruled out [by policyholders for
not offering the coverage],"
says Debbie Harris, senior underwriter at Auto-Owners Insurance Co.
| A
Sampling: Lease Contracts And Gap
Coverage | | Includes
Gap Coverage: | Ford
Red Carpet, GMAC Standard, Honda American
Finance, Key Bank Finance | | No
Gap Coverage: | Toyota
Motor Credit | | Source:
LeaseSource.com |
Auto-Owners
has rolled out its loan gap coverage in Indiana, Iowa,
Michigan,
and Ohio and expects it to be available in the other
23 states in which
it sells insurance by the end of the year. The coverage
is available to only
those who have bought brand-new, never-before-titled
cars and who have purchased
comprehensive and collision insurance with Auto-Owners.
Harris says that
the policyholder must buy the loan gap insurance when
he or she initially
purchases insurance. "You can't put the coverage on
at a later date,"
she warns. The
cost of the loan gap coverage from Auto-Owners is 5
percent of the
combined cost of your collision and comprehensive insurance. Auto-Owners
also provides a special "new for old" coverage. If,
within the first
90 days of purchase, you total your new vehicle, the
company will spring
for a new car, regardless of how much it costs to replace.
Harris says that
"new for old" coverage is built into the standard auto
insurance
policy. Other
insurers are selling gap insurance, too. Progressive
Insurance Co.,
for example, sells "loan/lease payoff coverage" — essentially gap insurance. If
you decide to keep your totaled car, Progressive will
deduct the car's salvage
value from its gap insurance payout, and will not pay
for any finance or late charges, extended-warranty
charges, or credit
insurance charges or refunds. In addition,
Progressive's gap payout will not exceed 25 percent
of the car's actual
cash value, according to a Progressive auto policy
from Connecticut. Finally,
you can't buy gap insurance from Progressive unless
you also have
comprehensive and collision insurance. "Our
gap coverage is the most awesome coverage you've ever
seen in your life," quips Edward Glinski, a personal
lines staff specialist at State Auto Insurance Co.,
based in Columbus, Ohio. State Auto's lease/loan gap
coverage is available in most of the 2
8 states in which it sells insurance, and will cost you 2 percent of your combined comprehensive and collision coverage premiums. State
Auto requires you to have both comprehensive and collision
insurance with
the company to qualify for gap insurance. You can buy
it only if your car has never been titled, and payouts
are capped at $5,000. In addition, State Auto, like
Progressive, won't pay for late fees or finance charges,
wear-and-tear and excess-mile charges
, or extended warranty or credit insurance charges that are part of your lease or loan. Glinski
acknowledges that some insurance agents won't tell
you about the gap coverage because they might not realize
you need it. If you find that you need gap insurance
ask your local independent agent for a list of companies
that sell it. Or, if you'
re a member, you might be able to obtain gap insurance from your credit union. By
Joe
Frey
insure.com |