Let's say you buy a new vehicle with a $25,000 loan. You get into an accident and your vehicle is totaled. At the time of the accident, your vehicle is valued at $15,000 but you still owe $20,000 on your loan.
For a covered loss, you'd get paid for the value of your vehicle at the time of the incident ($15,000). This leaves $5,000 owed on your loan. With gap insurance, the difference would be covered, minus any deductible.
Please note, gap insurance coverage must be purchased at the same time as your car and you must be the car's first owner.