What must happen to the vehicle for a gap contract to be enforceable?

A gap contract, also known as guaranteed asset protection insurance, is designed to cover the difference between the outstanding balance on a vehicle loan and the actual cash value of the vehicle in the event of a total loss. For the gap contract to be enforceable, the vehicle must suffer a total loss. This means that the vehicle is deemed irreparable or has been declared a complete loss due to incidents such as theft, accident, or natural disasters.

When a total loss occurs, the insurance company typically pays out the actual cash value of the vehicle to the policyholder. If this amount is less than the remaining balance owed on the loan, the gap contract comes into play to cover that difference, ensuring that the insured is not left paying for a vehicle they can no longer use.

The other options do not meet the necessary conditions for the enforceability of a gap contract, as they do not directly relate to the scenario in which a gap coverage would be activated. The transaction or condition of selling, modified coverage, or renting out the vehicle does not inherently trigger the purpose of gap insurance, which is specifically designed to address situations of total loss.