What is the primary purpose of Gap Insurance?

The primary purpose of Gap Insurance is to pay off a vehicle loan when the car's value is less than the loan balance. This situation often arises when a car is totaled or stolen, and the standard auto insurance policy may only cover the current market value of the vehicle, which can be less than the outstanding loan amount. Gap Insurance bridges this gap, ensuring that the vehicle owner is not left owing money on a car they can no longer drive. This type of coverage is particularly important for new cars that depreciate quickly, providing peace of mind to borrowers who might otherwise face financial strain in this situation. The other options address different types of insurance needs but do not pertain to the specific financial protection that Gap Insurance offers.