What is gap insurance?

Gap insurance is specifically designed to cover the difference between the actual cash value of a vehicle at the time of a loss and the outstanding loan or lease balance that the owner may still owe. In the event of a total loss, such as a theft or a significant accident, the payout from traditional auto insurance typically reflects the current market value of the vehicle, which can be significantly less than what was originally paid or what is still owed on financing. Gap insurance ensures that the vehicle owner is not left with financial responsibility for the remaining balance on their loan or lease after their insurance company pays out the actual cash value of the car. This is particularly important for individuals who have financed their vehicle with little to no down payment or who have a lease, as they could easily find themselves in a situation where they owe more than the vehicle is worth.