Function

• The function of gap coverage, or guaranteed auto protection, is to pay the difference between the amount owed on a car lease or loan and the actual retail value of the car. The Bankrate website states that cars "lose 30 percent of their value in the first year alone." Therefore, the amount you have your car insured for may not be enough to pay off your loan should the car be totaled in a wreck or stolen. Without gap insurance coverage, you could end up paying thousands on your car loan for a car that you can no longer drive.
  
  

Types

• Gap car insurance is available in two types. The first type requires a waiver of the lessor should the car be wrecked or stolen. The second type is a contract by a third party to cover the amount of the gap. Either coverage can be denied if the loan or lease is in default.
  
  

Considerations

• Not everyone should purchase gap insurance coverage. For example, if you put a 20 percent down payment or more on your vehicle, you may want to skip this coverage. If you do not have equity in your car or own a vehicle that has a high depreciation rate, gap insurance is a way to protect yourself should the car be stolen or rendered inoperable.