Leasing A Car? Here Are Two Insurance Products You’ve Got To Check Out

If you’re leasing a brand new car, there are two insurance products you have to investigate. The first is known as GAP insurance, while the second is known as “lease wear and tear” coverage…only many auto dealers will refer to “lease wear and tear” using a brand name like “WearCare” or “Lease Protection.” Regardless of what they’re called, lease wear-and-tear policies are often a great investment, as is GAP insurance. Here’s why.

GAP Insurance is Pretty Smart

When you buy or lease a brand new car, something terrible happens the minute you drive that new car off the dealer’s lot: the car depreciates anywhere from 20-40%. It’s the single-biggest drop in value your car will ever experience, and it happens before you make it home. While this loss isn’t significant or important to most people, it can be a big deal if your car is somehow destroyed in an accident while it’s still relatively new. If, for example, you park your one year old car on the street, and some careless driver comes along and totals it, your auto insurance policy might not cover your entire loss. Instead, they’ll just pay you “full replacement value.” Most auto insurance policies offer you full replacement value if your car becomes totaled,meaning that they pay you enough month to go and and buy another car just like that was totaled. However, because your car takes a big depreciation hit the minute you drive it off the lot, full replacement value is not the same as what you paid for the car. If you borrowed money to buy your new car, this can create a problem. If your car loan amount is for the full purchase price, your payment from your insurance company is going to come up 20-40% short. This “gap” between what you owe and what your insurance company pays you is your responsibility, and that could be very bad news. Of course, we’re assuming that your new car will get totaled…and it probably won’t. But if it does, you could lose thousands of dollars. Therefore, if you’re buying a brand new car, or if you’re borrowing more on the car than it’s worth (i.e. you’ve rolled some negative equity into your new car loan), than you owe it to yourself to investigate GAP coverage. Most auto dealerships offer GAP policies that are both affordable (about $500) and that do not have a deductible. If you buy GAP coverage from your insurance provider, keep in mind that the dealer’s zero deductible policy might be a better deal. NOTE: If you’re leasing a new car, GAP coverage is often included. Most new vehicle leasing companies understand the importance of GAP coverage and include it in all of their lease agreements. Therefore, before you pay for GAP coverage, make sure it’s not already included in your lease.

Lease Wear-and-Tear Policies

Lease wear-and-tear policies have also become a trendy product, largely because they make an awful lot of sense. If you lease a new car, you’re supposed to return it in essentially the same condition. While the car can have mileage, it’s only allowed to have “normal wear and tear.” This means that if you return your car with abnormal wear or damage, the leasing company will bill you for the cost of fixing that. There are a variety of minor damage items that leasing companies can charge you for, including:

• Pitted or cracked windshields
• Worn out tires or tires with uneven tread wear
• Dents, dings, and scratches
• Stains on seats or floor mats
• Bumper damage caused by parking on the street etc.

None of these minor damage items are expensive to fix, but they can add up to a small fortune. So, rather than arguing with the leasing company about what constitutes “normal wear and tear” – and how much it really costs to fix a scratched bumper – check out a wear and tear policy. Currently, Ford, Mercedes-Benz, and BMW offer lease wear and tear policies, with policies from Lexus and Toyota due this year. These policies guarantee that the leasing company will not bill you for minor damage, often up to a couple of thousand dollars. This means that you can lease a car, drive it as you normally would, and then return it without worrying about replacing the tires, the windshield, or getting a scratch buffed out. While leasing a car isn’t for everyone, if you find yourself considering a new vehicle lease, be sure to ask about wear-and-tear coverage. Author Jason Lancaster is the founder of AccurateAutoAdvice.com, a website offering new car buying tips based on real auto industry experience.