What is Gap Insurance?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 20 July 2018
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Gap insurance is a type of insurance that is often extended to persons who lease rather than purchase automobiles. The typical gap insurance policy provides protection in cases where the vehicle is destroyed or stolen before the terms of the lease are fulfilled. This usually involves paying the difference between what is still owed on the lease and the value of the vehicle at the time of the accident or theft.

Gap insurance policies can differ in the way that the coverage is provided. One model calls for the lessor to include a clause in the leasing agreement that waives any difference between the current value of the vehicle and the outstanding balance due on the lease. A second model for gap insurance involves a third party that will be responsible for the difference in the event that the car is totaled or stolen. Essentially, the third party will pay the difference or gap between current value and the amount due on the lease.


In all types of gap insurance coverage, there are a few constants. First, the lease payments must be current at the time of the destruction or theft of the vehicle. Otherwise, the gap insurance is considered null and void. Second, the lessee is still responsible for paying any deductibles that are applicable according to the terms and conditions of the lease agreement. Finally, there is a good chance that the lessee will have to continue making payments until the proceeds of the gap insurance are delivered to the lessor and the terms of the lease agreement are considered fulfilled.

As with any type of auto insurance, gap insurance is something that the owner hopes never has to be utilized, but finds extremely helpful in the event of theft or some type of catastrophic event rendering the vehicle unsalvageable. Generally, gap insurance is not expensive, especially when the premium is considered in light of the huge liability the lessee would incur without the coverage.


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