If your car is totaled or stolen, gap insurance will cover the “gap” between how much your car is worth and how much you still owe on it. Say you are driving around a vehicle with a market value of $20,000. Since you still owe $23,000 on it, that extra $3,000 (plus any applicable deductible) is coming out of your pocket. Now gap insurance won’t pay the deductible, but it will cover the $3k.
According to the Insurance Information Institute (www.iii.org), you should consider purchasing gap insurance if you: Made less than a 20 percent down payment; Financed for 60 months or longer; Purchased a vehicle that depreciates faster than the average; or Rolled over negative equity from an old car loan into the new loan.
For a leased vehicle, gap insurance may make the most sense. Since you are not paying the vehicle off, just paying to use it (in a sense), those payments will be smaller than those for a conventional car loan. Less vehicle equity will be paid and the gap between what the car was worth new, what it is worth now, and how much you have paid on it.
When you are discussing full coverage options with your insurance professional, also mention gap insurance and if it is right for you.