Collision & Comprehensive
Gap coverage, is designed to mitigate any losses that are associated with the difference between a claim pay out and the actual cost. For example, if a leased vehicle is involved in an accident the vehicle becomes damaged beyond repair, known as “totaled,” there’s often a difference between the amount still owed on the vehicle to the auto dealer and the claim payout check issued by a driver’s insurance company. The reason for this is because the insurance claim payout is based on the vehicle’s Actual Cash Value. Actual Cash Value is a calculation made by insurance adjusters which takes into account the depreciation of a vehicle. The difference between these two amounts is known as the “gap.”
An auto dealer will generally charge the lease for a “gap waiver” which absolves the lease holder of any financial responsibility to repay the dealer the gap amount, as they will file a claim for their losses through their own insurance policy. Financed vehicle owners however, might want to add gap coverage to their auto insurance policy to protect themselves from having to come up with the gap amount if the vehicle is totaled before it is paid off.