Glossary

Loan/lease payoff coverage

Optional coverage that pays part of what you still owe on a financed or leased car if it is totaled or stolen and the payout falls short of the loan.

Also called: loan/lease payoff, loan lease gap, lease gap coverage, loan payoff coverage

Loan/lease payoff coverage is an add-on to an auto policy that helps pay off a car loan or lease when the car is declared a total loss or stolen and never recovered. It is the auto insurer's version of gap insurance, and some companies sell it under a gap name.

After a total loss, your collision or comprehensive coverage pays the car's actual cash value, minus your deductible. New cars lose value quickly, so that figure can be less than the loan balance, especially with a small down payment or a long loan. Loan/lease payoff covers some or all of the difference. Many insurers cap it at a percentage of the car's value, commonly 25%. Example: you owe $28,000, the car is worth $24,000 and your deductible is $500. The insurer pays $23,500, leaving $4,500; a 25% cap allows up to $6,000, so the coverage pays the $4,500 (hypothetical figures).

The coverage usually requires collision and comprehensive on the car, and some insurers offer it only to the original owner or on newer vehicles. It typically does not pay overdue payments, extended warranty costs, or balances rolled over from a previous loan. Check whether your lease already includes gap protection before buying it. See what happens if your car is totaled and you still owe money.

Last reviewed October 4, 2026

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Related terms

Gap insurance Pays the difference between a totaled car's actual cash value and the larger balance still owed on its loan or lease. Actual cash value What a car was worth just before a loss — replacement cost minus depreciation — and the basis of most total-loss payouts. Total loss A car so badly damaged that repairs would cost more than it is worth, or more than a state threshold, so the insurer pays its value instead. Lienholder The bank, credit union or finance company with a legal claim on a financed car until the loan is paid off, usually named on the insurance policy. Loss payee The lender or leasing company named on your auto policy to receive claim payments for the car, alone or jointly with you, until the loan is paid off. Depreciation The loss in a car's value over time from age, mileage and wear, which insurers account for when calculating actual cash value.

Related guides

Gap insurance explained Gap insurance pays the difference between your car's value and what you owe if it's totaled or stolen. Who needs it, where to buy it, what it skips. Insurance requirements for a financed car Why lenders require collision and comprehensive, how the lienholder is listed, what force-placed insurance costs, and what changes after payoff. Insuring a leased car What leasing companies require (collision, comprehensive, higher liability limits, gap), how the lessor is listed, and what happens in a total loss. Insuring a new car: what to do before you drive off the lot How existing policies cover a newly bought car, the grace period to add it, what lenders require, and the coverage choices to make before you sign. What happens if your car is totaled and you still owe money How a total-loss payment is split with your lender, what happens when you owe more than the car is worth, and how gap and loan payoff coverage help.

Related insurers

Penn National Insurance A Harrisburg, Pennsylvania mutual founded in 1919 that sells auto, home and business insurance through about 1,200 independent agencies in 13 states. Progressive Ohio-based public insurer that sells online, by phone and through independent agents; known for Snapshot, Name Your Price and comparison quotes. PURE Insurance Member-owned high-net-worth insurer, part of Japan's Tokio Marine group, insuring luxury, everyday and collector cars for owners of $1 million-plus homes. Westfield Insurance Ohio insurer founded by farmers in 1848 that sells auto and home coverage through independent agents in nine states, often combined in one WesPak policy.

Related tools

Gap insurance calculator Chart your loan balance against the car's falling value to see how long you would owe more than it is worth — the window gap insurance covers.