The Problem

Car loans and leases are getting longer-48, 60, 72 months and more. Vehicles normally depreciate very quickly the first few years. The loan or lease gap occurs because the loan or lease payments are spread over a longer period of time, and the amount of the unpaid balance remains larger than the value of the vehicle over much of the loan period. The gap is often discovered only after a total loss when the amount the insurance company pays you for the actual cash value of the vehicle is less than what you owe the bank or leasing company. Instead of being reimbursed for your total loss, you have to pay the bank or leasing company thousands of dollars out of your own pocket in addition to the deductible.

Nobody is to blame for this problem-not the bank or leasing company or the insurance company or the car manufacturer, but there is a solution to the dilemma.

The Auto Loan/Lease Coverage Endorsement

This endorsement is available in most states, and many companies will offer this endorsement or a variation.

Coverage:

Leased vehicles: Reimburses you for the difference between the amount due under the terms of the lease and the actual cash value of the auto in the event of a total loss to the auto.

Owned vehicles: Pays any outstanding indebtedness incurred by you for that financed new vehicle in the event that there is total loss or damage to the vehicle and the amount due under the finance agreement is greater than the actual cash value of the automobile.

On partial lossesthe company will normally pay to have the damages repaired or parts replaced, and the lease or loan gap will not come into play.

There are exclusions:

• Overdue lease payments at the time of the loss are not covered.
• inancial penalties imposed under a lease for excessive use, abnormal wear and tear, or high mileage.
• Security deposits not refunded by the lessor, costs for extended warranties, credit life, health, accident, or disability insurance purchased with the loan or lease.
• Carryover balances from a previous lease.

Many companies will offer this endorsement only if you purchase the coverage soon after you acquire or lease a new vehicle. Companies may not offer this endorsement on used vehicles.

The cost for this endorsement averages about 7% of collision and comprehensive coverage premium. We recommend that you seriously consider this important and reasonably priced coverage.