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Why does my loan contract have a gap addendum listed on it?

I'm about to purchase a new car and noticed that my finance agreement has a gap addendum listed on it. What does that mean?

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Emily Maracle · Updated on
Reviewed by Shannon Martin, Licensed Insurance Agent.
An “addendum” simply means an addition to something. Most lenders identify gap addendums as contracts for
gap insurance
When added to a finance agreement, it amends the agreement to include gap insurance. That means you agree to obtain (or have already obtained) gap insurance on your financed vehicle. 
Why have gap insurance?
  • It is an important coverage to have on leased or financed vehicles, as it helps to cover the financial “gap” between your car’s actual cash value (
    ACV
    ) and the amount left due on your loan if the vehicle is stolen or totaled. 
  • It is common for new vehicles to depreciate in value rather quickly after purchase, so gap coverage can provide extra protection to keep you from paying your remaining loan balance out of pocket. 
Pro tip: If you don’t have an emergency fund or thousands of dollars on hand, it’s actually a smart insurance product to have—and it typically only adds a couple extra bucks per month to your premium.
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