Gap insurance covers the gap between what is owed on your vehicle loan and its current market value. In case of an accident, your insurance company will only pay your vehicle’s market value if they decide that your vehicle is totaled. For example, if your car’s current market value is $20,000, but you owe your lender $24,000, the $4,000 difference between your loan balance is the “gap” that is covered by the additional rider. Keep in mind that to use gap coverage, your claim must be covered under comprehensive or collision, and your vehicle must be considered a total loss.

Gap insurance claims do not cover car payments in case of financial hardship, job loss, disability, or death, nor does it cover vehicle repairs, diminished vehicle value, any necessary down payment for a new vehicle, or any loans.