What is gap insurance coverage?

GAP insurance coverage is a specialty insurance product that pays the difference when someone totals a car and owes more in debt than the auto insurance provider pays. Without this type of protection, payment of the remaining balance on the loan is left up to the owner.

It is common for people to be heavily in debt on a car loan during the period immediately after purchase. If the vehicle is totaled before loan payments catch up to depreciation, the need for GAP arises. If someone has an existing loan balance of $16,000 and a total loss insurance payout of $13,500, GAP coverage normally pays the remaining $2,500 on the loan payoff.