What does gap insurance cover?

[Grayson]

I’m confused about what does gap insurance cover for car insurance. Does gap insurance pay the difference between car value and loan balance? Is gap insurance worth buying for financed vehicles?

 

[Rick_Grimes]

Gap insurance stands for the shortfall that is the result of subtracting the actual cash value of the car from the amount owed on a car loan or lease in case of a total loss or theft. So it is the insurance that will save you from having to disburse money from your own pocket in case the compensation coming from the regular auto insurance is lower than the amount that you still have to pay off on your loan.