What a car wreck could cost you

Where to find it

Now, there are two scenarios where "underwater" drivers don't have to worry about gap insurance:

• If it's already included in your lease. In some states, including New York, leases by law must include gap coverage.

• If your auto policy is written to cover the gap. This isn't the norm, but some auto policies promise to pay off a loan regardless of the car's worth. You can try reading your policy to see if you're covered for any gaps or simply call your insurer and ask.

If you don't have coverage already, the solution fortunately doesn't have to be terribly expensive. You typically can buy the coverage:

From the dealership or auto finance company. This is probably the most expensive choice, especially if you roll the cost into your monthly note. You typically pay a one-time premium of $300 to $500 or more, plus interest if it's added to your loan or lease. Another disadvantage: You'll continue paying that interest as long as you pay on the car, even after you're no longer upside down on your loan.

From your current auto insurer. It's usually the best choice if your insurer offers the coverage. Progressive Insurance, for example, offers gap coverage that averages $20 every six months, said Insure.com's Danise. You can drop it once you're sure you're in the black.

From another insurance carrier. If your auto insurer doesn't offer gap insurance -- State Farm and Geico are among those that don't, Danise said -- you can look for gap insurance providers. Make sure they have top marks from one of the rating services such as A.M. Best, Standard & Poor's or TheStreet.com Ratings (formerly Weiss Ratings).

The best time to shop for coverage is before you set foot on the dealer's lot, Reed said. He advises calling your insurer to get a quote for coverage as soon as you decide what car you're going to buy. But all isn't lost if you fail to plan that far ahead.

"It'll be cheaper through your agent than through a dealership," Reed said, "but you can always buy it (at the dealership) and cancel it later" once you've got coverage with your insurer.

If you're a savvy enough negotiator, you may be able to get the dealership to lower its premium, Meredith said, particularly if you already know what coverage would cost through your insurer.

Some dealerships and insurers require you to get the coverage when you buy the car, but others let you add it later. If you don't have gap coverage and need it, it's worth the effort to search for a company that will sell it to you.

Like most insurance, it's something you may never need, Meredith said, but "it's a really good thing to have if you need it."

Danise agreed.

"Gap insurance is a great value for the money," she said. "Your premium dollars are well spent, particularly in this economy."

Liz Pulliam Weston is the Web's most-read personal-finance writer. She is the author of several books, most recently "Your Credit Score: Your Money & What's at Stake." Weston's award-winning columns appear every Monday and Thursday, exclusively on MSN Money. She also answers reader questions on the Your Money message board.

Published March 9, 2009

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