What is the importance of the "finance or lease gap" coverage?

The "finance or lease gap" coverage is designed to address a specific financial situation that can arise in the event of a total loss of a financed or leased vehicle. When a vehicle is totaled, the insurance payout is typically based on the actual cash value of the vehicle at the time of the loss, which may be less than the amount remaining owed on a loan or lease. This is particularly relevant for newer cars that depreciate quickly.

When this type of coverage is in place, it effectively bridges the gap between the outstanding loan or lease balance and the actual cash value that the insurance company will pay out. Without this coverage, the owner may find themselves in a position where they are still responsible for paying the remainder of the loan while having no vehicle.

In summary, the significance of finance or lease gap coverage lies in its role of protecting the insured from financial strain in cases where their vehicle is totaled, allowing them to avoid having to pay out of pocket for any remaining loan balance that exceeds the insurance payout.