GAP / Lease Gap Clause
The GAP clause (lease/loan gap cover) closes, in the event of a total loss or theft of a leased or financed vehicle, the gap between the replacement value paid under motor own-damage cover and the outstanding balance owed under the lease or loan agreement.
- Clause type
- Extension
- Origin/Market
- German market
- Favours
- Insured
- Negotiability
- Negotiable
Purpose
Following an economic total loss or theft, motor own-damage cover pays the vehicle’s replacement value as at the date of loss. For leased or loan-financed vehicles, the settlement figure demanded by the lessor or lender – comprising discounted outstanding instalments plus the calculated residual value – frequently exceeds that amount significantly during the early years of the contract, because new vehicles lose value sharply immediately after first registration. The GAP clause closes exactly this financial gap and prevents the lessee from being left with residual debt despite holding comprehensive cover.
Effect and limits
Cover applies only to total loss, destruction or theft, not to repairable damage, and presupposes existing partial or fully comprehensive own-damage cover. It overlaps with a separately agreed new-for-old replacement extension: for as long as that applies, it usually covers the gap between replacement value and new price more generously; the GAP clause only becomes economically relevant once the new-for-old extension expires, typically after twelve to twenty-four months, while the lease continues to run.
Negotiation and practice
Lessors increasingly require proof of GAP cover as a condition of the lease, particularly for upper-mid-range and premium vehicles with steep depreciation curves. When selecting cover, it is worth comparing whether it applies for the full lease term or only a limited period, and whether the own-damage policy’s excess is itself included in the GAP indemnity.