Someone might need gap insurance if they owe more on their car loan or lease than the vehicle is worth, especially if it’s totaled or stolen. Standard auto insurance typically covers the actual cash value (ACV) of the car, which accounts for depreciation. However, if the car’s ACV is less than the remaining loan balance, the driver will still be responsible for paying the difference. Gap insurance covers this “gap,” preventing the individual from having to pay out-of-pocket for the remaining loan balance. This is particularly important for those who finance a car with a low down payment or lease, as they may owe more than the car’s current market value early in the loan term. Gap insurance provides peace of mind by ensuring that the driver won’t face financial hardship in the event of an accident or theft, making it a valuable add-on to traditional car insurance.
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