Loan/Lease payoff gives you coverage beyond your vehicle’s actual cash value. It is an important coverage when you owe more than what the vehicle is worth. Loan/Lease payoff is a term that is used loosely. It can be confusing, because at times it is used in place of the term gap insurance. Other times it has its own set of rules varying a little from gap insurance.

Standard Coverage Conditions

• Max payout is 25 percent of your vehicles ACV
• If loan/lease payoff is offered, it can be added onto your policy at any time
• Your loan cannot be from an individual
• Your vehicle must have full coverage
• Insurance company must deem your vehicle a total loss

Example: John just purchased a brand new Chevy Silverado for $28,000. He purchased the truck with zero down and an extended six year loan to keep his payments down. The truck is stolen within the first month of purchase. Due to the infamous plunging value of a new truck being driven off the lot, the insurance company determines the ACV of the vehicle to be $21,000, a difference of $7,000 compared to what is owed. Luckily, John purchased loan/lease payoff through his car insurance, which will cover 25 percent beyond his ACV. Twenty-five percent of $21,000 is $5250, so the breakdown is as follows.

• Insurance company will pay $26,150 after subtracting a $100 deductible
• John will be responsible for the $1,850 remaining

Even though John’s loan was not paid off in full, he is much better off than without the loan/lease payoff coverage. This is an extreme example of depreciation; typically you’ll find 25 percent of the actual cash value will cover your loan in its entirety.