What is gap insurance in the context of auto insurance?

Gap insurance is designed to protect car owners from financial loss in the event that their vehicle is totaled or stolen and the amount owed on the auto loan exceeds the current cash value of the vehicle. When a car is declared a total loss, the insurance company typically pays the owner the car's market value, which can be significantly lower than the remaining balance on a loan or lease. Gap insurance fills this "gap" by covering the difference between what the owner owes on the loan or lease and the amount received from the insurance company.

This type of coverage is especially valuable in situations where cars depreciate quickly, such as right after driving them off the lot, making it possible that a borrower might owe more than what their insurance payout can cover. Therefore, the correct answer highlights the protective nature of gap insurance in financial terms, offering reassurance to drivers that they won't be left with a debt after a loss.

In contrast, other options do not accurately reflect the purpose or functionality of gap insurance. For instance, adding drivers to a policy relates to household coverage needs and does not pertain to financial protection regarding vehicle value. Describing coverage for used cars instead misrepresents gap insurance as it applies to any financed vehicle, new or used. Finally, the idea