What is gap insurance and why would I need it?

I have looked everywhere and don't understand what gap insurance means. What's an easy explanation of it? I'm buying my first car and I don't understand if I need it.

Answer
Gap insurance stands for guaranteed asset protection.
Because vehicles lose value every year, cars aren’t worth what you originally paid for them. You may owe more on your loan than the current actual cash value of your vehicle. Gap insurance covers that difference if your car is marked a total loss after an accident or theft.
For example: you purchase your new car for $25,000. In one year, your car may only be worth 80% of that ($20,000), but you still owe $21,000 on your loan. If your car is totaled in an accident, you would owe the $1,000 left on your loan. Gap insurance would pay that $1,000 balance.
If you’re looking for gap insurance, car insurance companies often offer it. Reach out to your current carrier or shop around to find competitive rates. “
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Emily Maracle
Answered on Apr 20, 2021
Emily Maracle is a car insurance specialist living in New York. Originally from the Pacific Northwest, she has a degree in English Literature and a background in customer service. She enjoys cooking, gardening, and living sustainably. In the future, she can't wait to upgrade to a hybrid or electric car.
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