What does GAP Coverage insure for a lessee when their vehicle is totaled?

GAP Coverage, or Guaranteed Asset Protection, is specifically designed to protect a lessee in the event their leased vehicle is declared a total loss due to an accident, theft, or other covered event. When a vehicle is totaled, the insurance company typically pays the actual cash value (ACV) of the vehicle at the time of loss. However, this value might be less than the amount the lessee still owes on the lease if they are in a situation where depreciation has outpaced their payments.

In this scenario, GAP Coverage comes into play by covering the difference between the actual cash value assessed by the insurance and the remaining lease payments owed. Therefore, this type of coverage ensures that the lessee is not left financially vulnerable by having to pay off a lease balance for a vehicle that is no longer in their possession. This is particularly relevant as vehicles tend to depreciate fast, and lessees could find themselves in a challenging financial position without GAP Coverage to make up this gap.

The other options do not accurately reflect the purpose of GAP Coverage, focusing on different aspects of insurance coverage or leasing that are not specifically addressed by this type of policy.