When you purchase a vehicle with little or no money down, there is a good chance you will have a negative Gap which is the difference between what you owe on the car and its current value. If you owe more than the actual value, you have whats called a GAP. If you owe $15k on your car and the value is $10k, you have a negative Gap of $5k. This is your responsibility to pay in the event of a total loss or stolen, unless you have Gap insurance. Therefore, the Gap insurance would pay the $5k for you. In some cases, the Gap will also include paying your deductible for your insurance company leaving you with no out-of-pocket expenses.
IMPORTANT THING TO KNOW!
Gap insurance is designed to cover you the entire term of your loan. But is it necessary to keep Gap until you payoff the car? Absolutely not, here's why! Negative equity will eventually turn into positive equity, typically within 2-3 years of starting your loan(varies). So it's important to know when you hit your break even point, meaning your loan amount is equal to or less than the value of the car, therefore eliminating the need for Gap Insurance. So make sure you get your refund!