Yes, gap insurance will cover negative equity. Negative equity occurs when you owe more on your car loan than the vehicle’s current market value. Gap insurance is designed to bridge the financial gap between the amount you owe on your car loan and the amount your insurance company will pay out if your vehicle is totaled or stolen. For example, if your car is worth $15,000 but you owe $20,000 on your loan, gap insurance will cover the $5,000 difference. This type of insurance is especially useful for new car buyers who may be in a situation where their vehicle depreciates faster than they pay down the loan. By having gap insurance, you can avoid being financially burdened by the remaining loan balance after your car is declared a total loss.