Picture this: you buy a new car, taking advantage of low financing and no down payment.

A month later, you get into an accident.

In this scenario, what you owe on the car is greater than what your car is worth. In other words, there's a "gap" between the vehicle's value and your loan -- and you're responsible for the difference.

This is why gap insurance exists. Gap insurance covers the gap between what your vehicle is worth and what you are actually on the hook for in regard your vehicle loan after a collision or theft. Take a look at the facts:

New vehicles lose about 30% of their value in the first year after purchase, and 20% the second year.  As a result, car owners could end up being "upside down" on their loan, where the loan amount is greater than the car's market value.

Gap insurance is an additional policy you can purchase through your agent (always a better and less expensive route than the car dealership). According to Trusted Choice, gap insurance might be a good option for you if:

• You're purchasing or leasing a new or slightly used vehicle,
• You're buying a vehicle of significant value,
• You are financing a new or used vehicle without a large down payment, creating a “gap” between your vehicle’s actual value and your loan amount, or
• You lack the cash savings needed you to cover the difference between the amount you owe on your loan and the actual cash value if your car is stolen or totaled.