Experiencing a total loss on your car can definitely be disappointing but perhaps a greater shock would be realizing the amount of your loan is larger than the claim payment.  This would take all the fun and excitement out of having a new car. 

Owing money on a car that has been totalled is no fun.  This is often times referred to as being "upside down" on your loan or lease. Fortunately there is an endorsement that can be added to a personal auto policy as well as commercial auto policy that solves this problem. 

Gap Coverage

Both the personal auto policy and commercial auto policy have endorsements available that provide a solution to this "gap".  This is referred to as "Gap" coverage because it fills the gap between the amount owed on the loan and the settlement paid by the insurance company for a total loss vehicle.  

Gap coverage is offered by car dealers too and can also be purchased online.  The advantage of purchasing the gap coverage through your insurance company is at the time of claim there would be one claim with one company.  If this coverage is purchased through a dealership or online the vehicle owner would need to file two separate claims; one with the personal or commercial auto insurance company and the other under the Gap policy.  Having one policy would make claim settlement much easier.  In addition, the cost of the gap coverage endorsement is usually less expensive when purchased through your auto insurance carrier vs. other sources. 

What Gap Coverage Does Not Include

It's important to note that gap coverage does not cover extended warranty or credit life insurance that the vehicle owner purchased as add-ons.  Overdue loan or lease payments would not be covered by gap coverage either. 

What is The Cost?

The cost to add gap coverage to your personal auto policy or commercial auto policy is small.  While premiums vary by state and by insurance company, gap coverage typically costs only 2% of the physical damage coverage on a personal auto policy and about 7% of physical damage on a business auto policy.  It's important to note that the endorsement is available on vehicles with loans and leased vehicles.  Paying off the terms of a lease can be very expensive for some vehicle owners who are under a long-term lease situation. 

Don't get caught with a gap.  If you think you may owe more on your vehicle than it's actual cash value, talk to your insurance agent right away about adding gap coverage to your policy.