What is gap insurance?
Gap Insurance is an optional, add-on protection item that can help vehicle owners cover the “gap” between the amount you owe on your car and the car’s actual value in the event of a total loss due to an accident or theft. A car’s actual value is the monetary value at the time of an unforeseen event, not the car’s original price or the principal amount left on a loan. Insurers will often use the Kelley Blue Book wholesale value as a starting point when determining a vehicle’s value.
If you owed $12,000 on your vehicle loan, but the actual value of the vehicle was $10,000 gap insurance would cover the $2,000 difference in value in the event of an unforeseen event.