Gap insurance is a type of auto insurance that covers the difference between the amount you owe on your car loan and the car’s actual cash value if it’s totaled or stolen. The primary difference between gap insurance and standard auto insurance is that standard policies only pay the car’s current market value, which might be less than the outstanding loan balance. For instance, if your car is worth $20,000 but you owe $25,000 on your loan, standard insurance would cover only $20,000, leaving you responsible for the remaining $5,000. Gap insurance bridges this gap, covering that $5,000 difference. It’s particularly valuable for new car buyers or those who have financed a large portion of their vehicle’s purchase price. This ensures you’re not left financially stranded in case of a total loss.