Gap insurance can be added to any car insurance policy and protects car owners against losses that can arise when the amount of compensation received from a total loss does not fully cover the amount the insured owes on the vehicle’s financing or lease agreement.
These endorsements provide coverage limits in excess of the actual cash value of the automobile in order to cover the outstanding loan or lease agreement. Coverage would apply at the time of a covered theft or total loss when our insured is liable for an amount greater than the actual cash value of the auto because of the loan or lease agreement.
Example: You finance a vehicle for $20,000. Three months later, you total it in an accident. The insurance company has assessed your vehicle to be valued at $16,000 and this is all they will give you. But you have only made 3 payments on the vehicle and still owe the finance company $19,000. Gap insurance will pay the $3,000.