Assume that the probability of the vehicle being totaled or stolen in the first month is 0.2%. For each month, multiply this probability (0.2% in month 1) by the potential gap benefit for the lease and loan ($2,200 and $500, respectively, in month 1). The potential gap benefit (line H below) will decrease over the term as the lease or finance agreement early termination balance decreases. The following table compares the value of gap coverage for a lease and a loan (having the characteristics as specified) for the first month.

 

		Loan	Lease
A	Purchase price (loan) or gross capitalized cost (lease)	$22,000	$22,000
B	Down payment (loan) or capitalized cost reduction (lease)	$3,000	$1,000
C	Amount financed (loan) or adjusted capitalized cost (lease) (A – B)	$19,000	$21,000
D	Loan payoff (loan) or early termination payoff (lease) in month 1	$19,000	$20,700
E	Vehicle's insured value	$18,000	$18,000
F	Gap amount (D – E)	$1,000	$2,700
G	Insurance deductible	$500	$500
H	Potential gap benefit (F – G)	$500	$2,200
I	Probability of vehicle loss	.2%	.2%
J	Value of gap coverage in month 1 (H × I)	$1.00	$4.40

To calculate the value of the gap coverage for the loan and the lease, this analysis would have to be completed for each month of the term.