When leasing a car, it is important to understand that most insurance
companies will only cover the "book" value of a car. Unfortunately, the
book value of a vehicle drops significantly once it is driven off the
car lot. Thus, the difference between the amount the insurance will
cover and the amount the consumer owes under their lease agreement can
be thousands of dollars.
Consumers can buy "gap" insurance to cover the difference. It can be
purchased separately or be included in your monthly lease payment. The
"gap" is the amount the lessee owes under the early termination clause
of the lease if the car is stolen or totally destroyed. This gap can be
thousands of dollars higher than the car's book value. Motor vehicle
gap insurance can cover the lessor, the lender or the borrower.