For example, according to the blue book, John's car is worth $15,000. However, he still owes a total of $20,000 worth of car payments. In the event that John's car is completely written off as a result of an accident or theft, John's car insurance policy will reimburse him with $15,000. Because John owes the car financing company $20,000, however, he will still be $5,000 short, even though he no longer has a car.
If John had purchased gap insurance, the gap insurance policy would cover the $5,000 "gap", or the difference between the money received from reimbursement and the amount still owed on the car.
Investment dictionary. Academic. 2012.
Look at other dictionaries:
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