The second you drive your new car off the lot, its value diminishes significantly. If you accidentally total the new vehicle minutes after purchase, your auto insurance policy will only reimburse you for the depreciated amount of the car.
However, you will still be responsible for the full balance of the loan or lease.
Therefore, many people who buy or lease a new car with little or no money down can benefit from loan or lease coverage.
"Given the current state of the auto market -- where down payments are often minimal -- this is a coverage car buyers might consider," says Wilson.
This type of insurance is often offered by a dealer, but you don't necessarily have to accept it. In many cases, you can save money by purchasing the coverage from your own insurance agent, Hungelmann says.
"You don't necessarily have to buy this coverage from the dealer, even though they'll probably try to sell it to you," he says. "Check with your insurance company first, because the dealer's price will often be five to 10 times more expensive (than the insurance company's)."
Typically, six months of this coverage will cost around $25 when purchased from an insurance company, says Wilson.
While loan/lease coverage makes sense for many people, it probably doesn't make sense for those who have a little equity in the vehicle, Hungelmann says.