Imagine you total your car in an accident and you still have $10,000 left on the loan. If you had gap insurance at the time of your accident, you wouldn’t have to pay the remainder of your loan. Rather, you would have to pay only your collision deductible, and then your collision insurance would pay to replace your car. If your car was stolen, however, comprehensive coverage would replace collision, which also includes a deductible.
If you didn’t have gap insurance, you’d still be on the hook for that remaining $10,000 on your loan or lease, which could seriously add to your new-car buying costs, as collision/comprehensive coverage reimburses you only for your car’s actual market value at the time of the accident, which is less than what you paid for it in most cases.