If you are paying on a car loan or a lease, your car may be valued for less than what you owe. So, if your car is totaled in an accident, gap insurance helps you pay off your loan or lease, minus the deductible.
"Gap insurance is short for Guaranteed Asset Protection. If your car is deemed to be undriveable or is stolen and the amount you owe on your auto loan or lease is greater than the actual cash value of the car, Gap insurance steps in to cover the difference between the actual cash value and the amount you owe on your auto loan or lease. This means you won't have to pay the remaining balance out of pocket. Let's say you bought a new car for $30,000 and took out an auto loan to finance it. A year later, the car is stolen, and your primary insurance company determines that its actual cash value is $20,000. However, you still owe $25,000 on your auto loan. Without gap insurance, you would have to pay the $5,000 difference out of your own pocket. But if you have gap insurance, it will cover the $5,000 gap, so you don't have to pay anything extra. Remember though, gap insurance is typically optional and is not a substitute for primary auto insurance