I often get calls from accident victims who are frustrated with the at-fault driver’s insurance company because their car was totaled in the accident and the insurance company is offering less than what they owe on their car. My first response is to ask them if they purchased “gap insurance.” Sadly, most callers have never heard of gap insurance, but wish someone would have told them about it sooner.

Gap Insurance is a small insurance policy on your car loan that kicks in when the amount the insurance company will pay for your totaled or stolen car is less than what you actually owe on the loan or lease. When you purchase a car, make sure you ask if gap insurance has been included because most car dealers or auto loan officers leave Gap Insurance out of the sales agreement or loan documents without asking you if you want it. If you don't have it, you could be upside down on your loan for an accident you didn't cause.

Insurance companies only have to pay what your vehicle is worth (not what is owed) when it is totaled in an accident. So if you are leasing or financing at least 70% of the value of your car or you rolled debt from your last car into your current loan, gap insurance will save you money if your car is totaled or stolen.

Contact your lien holder to find out if gap insurance was included in your loan. If it wasn't, most lien holders will let you add gap insurance (even if you didn't get the coverage when you bought the car) since they would lose the collateral for their loan if the car is totaled in an accident. Most gap insurance policies average $5 to $10 a month. You may never need to use it, but for the price, it's a good thing to have!