Gap Coverage (Guaranteed Auto Protection, or GAP)

A plan that provides you financial protection in case your leased vehicle is stolen or totaled in an accident. Some plans deny gap coverage if you are in default at the time of the loss. There are two types of gap coverage. One is a waiver by the lessor or assignee of the gap amount if the vehicle is stolen or totaled. The other is a contract by a third party to cover the gap amount. Under either type, you may remain responsible for the insurance deductible, for other amounts deducted from the insured amount of the vehicle by your insurance company, and for any past-due or other amounts you owe under the lease. You may also be responsible for the monthly payments until the lessor receives the insurance proceeds.

Source: Federal Reserve Board