Coverage that pays the difference between what you owe on a car loan or lease and the vehicle's actual cash value if it is totaled or stolen. Without gap insurance, you could owe thousands of dollars to your lender after an insurance payout.
Related Terms
Actual Cash Value
The current market value of property at the time of a loss, calculated as replacement cost minus depreciation. If your five-year-old roof is damaged, an actual cash value policy pays what a five-year-old roof is worth today — not the cost of a brand-new roof.
Collision Coverage
Auto insurance that pays for damage to your own vehicle when it collides with another vehicle or object, regardless of fault. Collision coverage is optional but often required by lenders if you have a car loan or lease.
Comprehensive Coverage
Auto insurance that pays for damage to your vehicle from non-collision events such as theft, vandalism, fire, hail, flooding, falling objects, and animal strikes. Like collision, it is optional but typically required by lenders.