Gap insurance covers the difference between what you owe on your car and its value. That difference can be thousands of dollars if the down payment you made was less than 20% or your loan is financed for more than 60 months.

New cars lose their value quickly. As soon as you drive off the lot it is considered a used car. If your car is stolen or in an accident and deemed totaled, your insurance will pay you what the car is worth, not what you bought it for, or how much you still owe.

You will no longer need gap insurance when you owe less on your loan than what your vehicle is worth. This usually happens around two years after your loan. An easy way to find out is to compare how much you owe with online guides for car values.

If you pay off your loan early or sell the vehicle you will want to cancel your gap coverage.