Gap insurance is an insurance product which is designed to protect the insured against loss in the event of an automobile accident with a new car which was purchased without a down payment. Once a new car is purchased and surpasses an initial satisfaction guarantee period, it automatically depreciates up to 30% in value. The result is a car loan which is of greater value than the actual value of a car. If a car accident occurs and a new car is declared a total loss by an insurance company, the value of the car is typically covered by the policy. However if the car loan is for more than the car is worth, there will be an outstanding amount which will need to be paid despite loss or damage.

A down payment on a new car purchase usually eliminates the need for gap insurance, provided it covers the amount a car will depreciate once it is assumed. Gap insurance is not eligible for cars which were purchased with a mortgage loan or home equity line of credit. It is used to satisfy outstanding car loans resulting from a loss , Another form of gap insurance is total loss insurance which covers expenses, deductibles and car replacement in the event of an accident resulting in a loss.http://www.gap-insurance.com/

Gap insurance can be acquired at the time of a new car purchase, or it can be purchased at a later date, from a broker or insurance agent. If purchased along with a new car, a gap insurance premium may be added to a car loan, resulting in interest on the gap insurance premium. Gap insurance is not intended for used cars or commercial vehicles.http://www.edmunds.com/advice/finance/articles/105266/article.html