If your new car is totaled or stolen and not recovered, your existing auto insurance is not always enough. Whether your car is leased or financed you could be left holding the bag for several thousand dollars. Too many people find this out the hard way. The reason? The value your insurance company places on your car may be substantially less than the amount you owe your lender or leasing company. The result is a financial gap where you must make up the difference.

Example, let’s say you financed your new "whatever" for 48 months at $20,000. This week your car is stolen and not recovered. You report the theft to your insurance company and wait the allowed time before the insurance company pays you for a replacement car. You also notify your lender or lessor of the loss and get a loan payoff amount of $18,200.

Your insurance company, using a computer network, will check the current market value for your new "whatever" and find that it is worth $16,000. You’re expecting the $18,200 because that’s what you owe your lender. Wrong! Guess who has to pay the $2,200 difference ($18,200 - $16,000)?

In the example above the difference between your cars true value and your loan payoff will be much greater because more buyers are upside-down on loans. Meaning you rolled over the outstanding balance of your previous loan into the new loan creating an inflated payoff.

If you had purchased GAP at the time you bought your new car you would have no out of pocket liability except your insurance deductible. GAP does not cover any delinquent payments or any past due charges at the time of the total loss. GAP is not a true insurance product - it requires no licensed agent to sell it.

To be eligible to receive the GAP reimbursement, you must maintain at all times the vehicle insurance required under your lease/loan agreement. And, GAP must be purchased at the time you buy your new car.

Make sure that your GAP provider has the cash reserves to pay all future claims.

You will pay a one time charge for GAP coverage. The dealers cost is around $100 - $140. Your cost will be around $395 - $495 on a 5 year loan/lease. GAP is offered by lessors, banks, credit unions, auto dealers and insurance companies. Lenders are seeing an increase in the cost of GAP because of the upside-down loans which place the insurer at higher risk.

Questions To Ask Lessor: What company provides your GAP protection? What are the terms and conditions? What is the claim procedure? How much does GAP cost? Can GAP protection be canceled? If so, is there a prorated premium refund?

GAP (Guaranteed Auto Protection) Insurance