GAP insurance can provide valuable protection during the early years of your car's life if you have a loan or a lease.

If a loss occurs, GAP insurance will pay the difference between the actual cash value of the vehicle and the current outstanding balance on your loan or lease. Gap Insurance protects your vehicle lease or loan. Sometimes it will also pay your regular insurance deductible.

If your vehicle has been totaled by accident, theft, fire, flood, tornado, vandalism, or hurricanes your insurance company typically pays the actual cash value. That may be less than its actual retail value. It is often considerably less than the actual amount you still owe on your loan or the amount due for a lease payoff.

The amount between your insurance deductible and the loss from this financial shortfall is the “gap” you can be left owing.

When you purchase your policy online with CarInsurance.com, most of our carriers offer this coverage. It is labeled Loan/Lease Gap coverage. You can purchase it easily with your policy for very little premium. If you don't have a CarInsurance.com policy, CarInsurance.com offers GAP Insurance as a separate policy through this online partner.

This is how a "GAP" occurs (using fictitious numbers):

• You choose a car that costs $25,000 and you drive it off the lot.
• After paying the down payment you owe $24,000 in car payments over 5 years (0% interest loan = $400 car payments).
• You purchase physical damage insurance (comprehensive and collision) with a $500 deductible to protect you against damages and loss.
• You have an accident while you are still upside down on your loan or lease ("Upside down" means owing more on a car than it's worth) and your vehicle is totaled.
• The insurance company determines that the actual cash value of the car is only $22,000, but at the time of the loss you still owe $23,500.
• GAP insurance should pay the difference plus your deductible totalling $2000. (Not all GAP policies pay the deductible)

Here are the line items:

• Loan Payoff at the time of accident: $23,500
• Vehicles actual value at the time of accident: $22,000
• Your deductible: $500
• Physical Damage Insurance Company pays: $21,500 ($22,000 minus $500 deductible)
• GAP insurance pays the difference between what is owed and what the Physical Damage Insurance Company pays (plus your deductible): $2000

Typically a new car is worth approximately 30 percent less in 3 months than the day it was purchased! In our example above, if you owned the car for 3 days, had physical damage coverage and the car was totaled, you could owe 20% to 30% of the $24,000 ($4,800 to $7,200 out of your pocket) even though you purchased "full coverage."

Car owners often assume that if their car is totaled, it will be replaced at the amount they paid, or at least the amount they owe. This is not so. Many car insurance companies offer a GAP option (Loan/Lease Gap Insurance) as an optional coverage that is available with physical damage coverage. If you carrier doesn't offer it, you can purchase it here: CarInsurance.com offers GAP Insurance.

Remember these possible exclusions/policy rules:

• Maximum Limit of Loss: $50,000
• A GAP claim settlement may not cover the entire gap due, when your loan's Original Amount Financed exceeds 120% of MSRP (new vehicle) or NADA Retail Value (used vehicles), plus 30% of Value allowable for Additional Financed Items like Credit Life or Service Contracts.
• The claim settlement does not cover late charges or other penalties due to your lender.
• Your loan amount financed must be less than or equal to $100,000.
• Your loan term must not be greater than 84 months.
• The loan must not have a balloon payment due at the end of the term.
• The maximum APR is 12.5%

Comment Update: Your situation where you left the dealership and only have the car for 15 minutes is the perfect scenario where GAP insurance applies. The car isn't worth the value you paid for it, therefore your insurance company will only give the "cash value" of the car. The other person is likely responsible for all the damages, but if their company doesn't give you full value then GAP insurance would pay the difference and likely go after the liable party (subrogation).