What is gap insurance and when do you need it

Gap insurance covers the difference between what your car is worth (its actual cash value) and what you still owe on your loan or lease if the vehicle is totaled or stolen. Cars depreciate quickly, so you might owe $25,000 on a loan while the car is only worth $20,000 — gap insurance covers that $5,000 difference. You need it when you financed a car with little or no down payment, have a long loan term (60 months or more), leased a vehicle, or bought a car that depreciates faster than average. It's most useful in the first few years of ownership. Once your loan balance drops below the car's market value, gap insurance is no longer necessary.