In the context of gap insurance, what is primarily covered by the insurance policy?

Gap insurance is specifically designed to cover the difference between what a vehicle is worth at the time of a total loss and what the insured still owes on the loan for that vehicle. This can be particularly important when a car is financed or leased, as the vehicle's depreciating value may result in a situation where the insured owes more than the vehicle's current market value. In cases of theft or total loss due to an accident, standard auto insurance typically only pays the actual cash value of the vehicle, which may not be enough to settle the loan balance. Thus, gap insurance provides that crucial coverage, ensuring that the borrower is not left responsible for the remaining payments on a vehicle that they can no longer use.

This makes gap insurance a valuable addition for anyone who has recently purchased a vehicle through financing or leasing, as it protects against the financial burden of having to pay off an outstanding loan despite losing the vehicle.