Lets say you just bought a new car and you are driving off the lot, then the unexpected happens.... you have an accident. You have Full Coverage insurance right? You are covered or maybe not.

The moment you drive the new car off the lot, the value of the car drops down sometimes by as much as 20-30% of the actual value. So to make it simple lets say your new car is worth $20,000 when you purchase it on installment. The accident occurs on the first month of your purchase, so assuming this situation you have only made one monthly payment on your vehicle or if you didn't put any money down then you owe the full $20,000 in payment for the car.  

You think the insurance will cover for the payments of the car but unfortunately even with full coverage which includes comprehensive and collision. You only get the market value of the car, which is 20-30% less then the purchase price of the car. For a car worth $20,000 considering a depreciation of 20% is already $4000, which is still your liability to the car dealership. 

GAP stands for Guaranteed Auto Protection. It is important that you purchase GAP insurance when buying or leasing a new car. This car insurance cover the difference between the loan amount and the actual market value of the car.  It is not a wise decision to skip GAP insurance to cut the cost of buying a new car. This insurance could help you save a lot of money in case something unfortunate happens to your new ride.