What does "gap coverage" address in auto insurance?

Gap coverage specifically addresses the financial disparity that can arise when a vehicle is totaled or stolen and the insurance payout is less than the remaining balance owed on a loan or lease. This situation often occurs when a vehicle depreciates in value faster than it can be paid off.

Essentially, if an individual has a car loan that exceeds the actual cash value of the vehicle at the time of a total loss, gap coverage will cover that "gap" between what the car is worth and what the owner still owes to the lender. This means that the policyholder can avoid being personally responsible for the remaining loan amount after the insurance settlement, providing financial security and peace of mind.

The other options refer to different aspects of auto insurance, such as coverage for personal belongings, which is typically not included in standard auto policies; collision coverage, which deals with damages to the insured vehicle regardless of fault; and premium discounts for low mileage driving, which relates to the cost of insurance rather than coverage options.