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You’ll be sorry you didn’t get this coverage.

Key points

• Drivers need sufficient auto insurance coverage.
• Finance expert Dave Ramsey recommends buying many types, including gap insurance.
• Gap insurance can help protect drivers who owe more on a totaled car than it’s worth.

Buying the right auto insurance coverage can provide important protection for motorists. Finance expert Dave Ramsey has recommended buying many kinds of car insurance, including required liability coverage and optional collision and comprehensive insurance.

But Ramsey recently mentioned another type of protection on his blog that he said many drivers need to have to avoid financial disaster. Here’s what it is.

Certain drivers need this insurance

Among the insurance types he recommended, Ramsey also suggested certain motorists buy gap insurance. “Gap insurance is designed to cover the gap between the car’s actual cash value,” Ramsey wrote on his blog, “including depreciation, and what you still owe.”

He recommended that anyone who finances or leases a car purchase this coverage. Otherwise, he explained, if drivers fail to put this protection in place, “you can be up a creek if your car is totaled and you’re stuck making payments on a car you don’t even have anymore.”

Why Ramsey is right about gap insurance

Ramsey is correct that people who finance or lease vehicles should have gap insurance. That’s because there’s a big chance that if a car is totaled, insurance won’t pay enough to cover the outstanding car loan in full.

See, many people who purchase or lease vehicles make small down payments and then repay their loan over a long period of time — often several years. And vehicles can go down in value quickly. So, shortly after a motorist drives off the lot, the car may be worth less than the driver paid for it — especially if the vehicle was brand new.

If a car is totaled, the insurance company pays the depreciated value of the vehicle, as Ramsey said. That’s the current market value of the car — which may not be very high if the vehicle is a few years old. If a driver owes more money on a car loan than insurance pays after a car is destroyed, this doesn’t absolve the driver of responsibility for repaying the loan.

When a motorist has gap insurance, however, the gap insurance policy will pay off the remaining loan balance. Say, for example, a driver owes $20,000 on a car and receives a check for $15,000. Gap insurance could pay off the outstanding balance on the loan above and beyond the money insurance provides.

But without gap insurance, the driver would still be responsible for paying the remaining money due on the loan. This could mean paying thousands to a lender for a destroyed vehicle, which no one wants to do. Once motorists understand what gap insurance is and why it’s needed, it’s easy to see why Ramsey believes being without it could lead to dire consequences.

What’s more, many lenders and leasing companies actually require gap insurance. But even motorists who are not mandated to buy this protection may want to explore their options for adding it to their insurance policy to protect their financial future.