Question: how does car insurance work in the us

title: Vehicle insurance in the United States
text: Due to the sharp decline in value immediately following purchase , there is generally a period in which the amount owed on the car loan exceeds the value of the vehicle , which is called `` upside - down '' or negative equity . Thus , if the vehicle is damaged beyond economical repair at this point , the owner will still owe potentially thousands of dollars on the loan . The escalating price of cars , longer - term auto loans , and the increasing popularity of leasing gave birth to GAP protection . GAP waivers provide protection for consumers when a `` gap '' exists between the actual value of their vehicle and the amount of money owed to the bank or leasing company . In many instances , this insurance will also pay the deductible on the primary insurance policy . These policies are often offered at auto dealerships as a comparatively low cost add - on to the car loan that provides coverage for the duration of the loan . GAP Insurance does not always pay off the full loan value however . These cases include but are not limited to :