Gap insurance (or GAP insurance, where GAP stands for “guaranteed auto protection”) and loan/lease coverage may be the 2 most important car insurance coverages you’ve never heard of.

Some drivers assume comprehensive and collision coverage offers full protection if their car is stolen or totaled. But if they’re financing or leasing a new car and experience a total loss, they could be in for a rude awakening.

A total loss

Imagine you just purchased a new car with a sticker price of $30,000. You put $1,000 down, leaving you with $29,000 to pay over the coming years. You wisely buy comprehensive and collision coverage with a $500 deductible.

Unfortunately, a couple months later, your car gets totaled in an accident.

You file a claim. Your car insurance company informs you they’ll disburse a payment of $26,000 to cover your car’s actual cash value. You breathe a sigh of relief before looking at your latest loan statement … and gasp when you see that you still owe $28,000 on your car! That leaves $2,000 — plus your $500 deductible — for you to cover out-of-pocket, assuming you don’t want to retain salvage (i.e., retain ownership of your totaled car). If you do retain salvage, the salvage value will also be deducted from the payout.

Enter gap insurance

Gap insurance covers the difference between what you owe on your car and what your car insurance company is willing to pay for it — without any maximum payout stipulation. If you financed a new car, chances are this gap will linger for a couple of years, leaving you responsible for the difference in the event of a total loss. Eventually the difference in these totals will vanish, but in the meantime, gap coverage protects you from having to cover the difference.

It’s worth mentioning that, in most cases, you can only use gap insurance if you’ve purchased comprehensive and collision coverage. Review your policy’s declarations to get an understanding of these coverages.

Where can i get gap insurance and what does it cost?

If you don’t already have gap insurance, check with your car insurance company. Most insurers offer this coverage or a variant called loan/lease coverage. Gap coverage usually costs a few extra dollars a month, but rates can vary.

Alternatively, you can purchase gap insurance at your dealership, though this is likely to cost you significantly more. Many dealerships sell gap insurance coverage for an average of $500 to $1,000, and they often require a large payment upfront.

Therefore, you’re likely to save a lot by purchasing gap coverage through your car insurance company.

So what’s loan/lease coverage?

Loan/lease coverage is a variant of gap insurance coverage. It’s similar to gap coverage in that it’s designed to cover the gap between what you owe on your car and its actual cash value. Where the coverages differ is in the amount they’ll provide in the event of a total loss.

Unlike gap coverage, loan/lease coverage only provides some percentage of your car’s actual cash value — often about 25 percent. In the imaginary scenario above, loan/lease coverage would provide up to $6,500, more than enough to help you pay off your loan. But loan/lease coverage may not always be enough to cover you, so consider the breadth of your gap before purchasing loan/lease coverage.

Gap insurance for the leasing

Given the nature of lease contracts, gap insurance is particularly important for those leasing a car — so important that most lease contracts include gap insurance by default. Carefully review your leasing contract to make sure it includes gap insurance. If it doesn’t, consider adding it to your regular car insurance policy as soon as possible.

 getting — and getting rid of — gap insurance

 If you’re the proud new owner of a financed car, take a moment to check your car’s actual cash value using the NADA Guides, then compare that value to your loan balance. If you owe more than the car’s worth, we suggest contacting your car insurance company to add gap insurance or loan/lease coverage to your current policy. It’ll add a few more dollars to your monthly or biannual payment, but it could potentially save you thousands.

 Once you have gap insurance, monitor your car’s changes in value (depreciation tends to slow after the first few years of ownership) and your decreasing loan balance. As soon as you’re no longer “upside down” — i.e., you owe less than your car is worth — you can remove your gap or loan/lease coverage. Many car insurance companies will alert you when you no longer need this coverage, but it pays to keep track yourself.

Mind the gap

So if you’re the proud owner or leaser of a new car, don’t let yourself get caught in the gap. Consider gap or auto loan/lease coverage to protect yourself (and your brand new car).