<P> 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: </P> <Ol> <Li> Any unpaid delinquent payments due at the time of loss </Li> <Li> Payment deferrals or extensions (commonly called skips or skip a payment) </Li> <Li> Refinancing of the vehicle loan after the policy was purchased </Li> <Li> Late fees or other administrative fees assessed after loan commencement </Li> </Ol> <Li> Any unpaid delinquent payments due at the time of loss </Li> <Li> Payment deferrals or extensions (commonly called skips or skip a payment) </Li>

When did having car insurance become a law