If you have purchased your vehicle on loan or leased a vehicle, you may end up owing more on your loan than the actual cash value of the vehicle. For such type of vehicles, loan/lease payoff is the best coverage in case if the vehicle gets totaled. This type of insurance is similar to gap insurance but there is little difference between in terms and conditions of the coverage. In most cases, this coverage is available if your loan or lease is held by the financial institution but not an individual.
Benefits of loan/lease payoff coverage:
Here are some of the benefits of loan/lease payoff coverage in certain cases such as:
- If you made only minimum down payment
- If you have loan repayment period, where the amount to be repaid is higher than the actual value of the vehicle.
- If you purchased a vehicle that has high depreciation value.
When your car gets totaled (total loss) after a few days of its loan/lease purchase, your collision and comprehensive coverage will pay off the cash value of the car. But what about the difference between this amount and the amount you currently owe on your vehicle loan or lease?
Here comes, the working of loan/lease payoff coverage. For instance, consider your vehicle’s actual cash value is $20,000, your loan amount went to $25,000 and your car gets totaled within few days of purchasing it. In such a case, loan/lease payoff coverage will compensate $5,000. However, the payment made under loan/lease payoff coverage may not exceed 25% of actual cash value of the vehicle ($5,000).
Thus, when you lease a vehicle or purchase a vehicle on loan, you need to consider insuring it to the full extent, so as to reduce the risk of additional expenses from your wallet.