Answer:

Whether you lease your car or have an outstanding auto loan, GAP insurance can provide valuable protection during the early years of your car's life. As we all know, a new car's value drops the minute you drive it off the lot. And unfortunately, if a bus plows into the side of your new car five minutes after you drive it off the lot, your insurance only covers the actual cash value of the car. At this point, there's a good chance the insurance payoff isn't enough to pay off your outstanding lease (or loan) balance.

GAP insurance was created for just such a situation. If a loss occurs (theft, total loss in a collision, etc.), GAP insurance will pay the difference between the actual cash value of the vehicle and the current outstanding balance on your loan or lease. Some lenders and lessors actually require you to carry GAP coverage until the outstanding loan/lease amount drops below the value of the vehicle.

If you decide to purchase GAP insurance, make sure you don't keep the coverage for longer than necessary. Once the outstanding balance on your loan or lease drops below the value of your vehicle, GAP insurance becomes an unnecessary expense.

GAP insurance is typically not very expensive, since the coverage amount is relatively small. However, the cost will vary depending on the type and value of the vehicle you purchase. Cost may also vary from one insurer to another.