Car gap insurance can protect you financially if you owe more than your car is worth at the time it is totaled in a crash or stolen, but not all gap coverage is created equal.

Here are five tips when shopping for car gap coverage. To learn if you need car gap insurance for your car, read the Bankrate story, “Car gap insurance: Is it right for you.”

1. Check with the agent for your current auto policy. Some insurance companies offer car gap insurance as an add-on to an existing auto insurance policy. Insurers in some states may even automatically include gap insurance when a customer purchases a new car. Check with your auto insurance provider to see if you are already covered and if not, if they offer gap coverage.

The advantage to obtaining car gap insurance with the same company as your primary car insurance is that you will only need to file a single claim in the event your car is a total loss instead of needing to file two claims — one with your primary insurer and the other with your gap insurance firm. Even if your main car insurance company offers car gap insurance as an add-on to your policy, you should still shop around to ensure you are getting the best rates and coverage you can find.

2. Use caution if buying gap insurance at the dealership.
Dealers will usually offer car gap insurance at the time of your purchase, often rolling it into your monthly car payment. However, the cost is almost always higher than if you obtained the coverage on your own. While car gap insurance costs depend on numerous factors, it’s often quite inexpensive — less than $100 per year.

It’s typical for dealers to get a kickback for selling car gap insurance, while the cost is passed on to you. They’ve been known to even set their own rates based on what you tell them about the monthly payment you want. Turn down the coverage from the dealer until you can compare it to other quotes. You can always go back and add it later.

3. Review the term and deductible of the gap insurance policy. You only need car gap insurance during the period you’ll be upside down in your loan. That’s typically three years for a new car with very little money down. You’ll need coverage for longer if you are rolling the balance of another car loan into your new loan. Deductibles on gap insurance can be higher than primary car insurance deductibles, so budget accordingly, since this deductible is usually paid in addition to the deductible you have on your primary auto insurance policy.

4. Understand what’s covered and excluded. Ask each company you are considering for car gap insurance to provide you with the details of the policy in writing and review it carefully. Some gap insurance providers may provide additional coverage beyond the cost “gap,” such as making overdue lease or loan payments and paying off a carry-over balance from a previous car that has been rolled into the current car loan. It also might reimburse you for the cost of an extended warranty that you purchased at the same time you bought the car. For lessees, some gap policies may reimburse security deposits and pay any penalties assessed for excess mileage or wear and tear. Other gap insurance providers may specifically exclude these types of coverage!

5. Check for the policy’s limits. Some car gap insurance policies pay the price difference between the car’s value at the time it was totaled in a crash or stolen and the amount you owe on your loan, regardless of the size of the “gap.” Other policies limit the coverage to a specific dollar amount or percentage, for example 125 percent of the loan balance. So it’s important to understand what your dollars are buying. If you opt for gap coverage with the limit, keep in mind that the average new car will depreciate about 30 percent in its first year.

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If you have a car question, e-mail it to us at Driving for Dollars. Read more Driving for Dollars columns and Bankrate auto stories.

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