The dramatic plummet of your new car's value as soon as you drive it off the dealer's lot can put surprising and undue strain on your wallet if your car is totaled.

If you're entitled to a payout for a totaled car, your insurance company pays you the actual cash value of the vehicle. And the amount your insurance company calculates as your car's actual cash value can be thousands of dollars away from what you still owe on your car lease or loan, especially within the car's first year of ownership. Since you're responsible for paying the remainder of your lease or loan even when your car is totaled, you might have to come up with hundreds — maybe even thousands — in cash. Unless you have gap insurance.

Gap insurance pays the difference between the amount your insurer pays for your totaled car and the amount you owe on your lease or loan.

If you're like most drivers, you assume that if your car is declared a total loss in an accident you're going to recover the amount you owe on the car, or if it's new enough, the amount you paid for the car. But cars don't hold their value like that. When you drive the car off the lot, you've automatically lost the fees you paid for things like licensing, destination charges, advertising, and documentation. Those are one-time costs that you won't get back if the car is totaled, but they are incorporated into the total price of your new car at purchase. However, you may be entitled to make a claim for reimbursement of sales tax when you purchase a replacment car. For more information, see Recouping expenses afer your car is totaled.

Generally, new cars tend to lose more value in their first year compared to used cars. Within the first year, auto industry standards indicate a car loses between 11 to 20 percent of its value. For a car that costs roughly $25,000, that's between $2,750 and $5,000 in the first year alone. However, certain vehicles retain their value better than others. For example, when gas prices skyrocket, re-sale prices for fuel efficient cars increase.

In a loan or a lease, you usually haven't paid for that much of the car in the first year, so this is the time when the difference between what you owe and what the car is worth could be the greatest. Over the next two to three years, the car's depreciation begins to slow, then level off, and by the fourth or fifth year of ownership, you can consider dropping gap coverage, since the value of the car and what you owe have usually aligned.

It is also worth remembering when you buy a new car that the most popular new cars are the most popular used cars, meaning they hold their value better.

The loan gap

Many car lease contracts include gap insurance but require you be in total compliance with the lease in order for the gap coverage to pay out. Most gap insurance policies offered through a lease contract require you to continue to make monthly payments until the gap payment is received.

If you decide to finance your vehicle through a bank, you probably won't have a contract that provides you with automatic gap insurance. Many auto insurers sell gap insurance but don't advertise the fact. And some of the biggies don't sell it at all. GEICO and State Farm Mutual Automobile Insurance Co., for example, don't sell it.

Auto-Owners Insurance Co. is among those that does. But like many insurance companies, gap coverage is available only to those who have bought brand-new, never-before-titled cars and who also have purchased comprehensive and collision insurance. "Auto-Owners [also] recommends that coverage be purchased when he or she initially purchases insurance, as this is when the gap is the largest," says John Lindauer, spokesperson for Auto-Owners.

Other insurance companies will allow you to purchase gap coverage up to 11 months after you purchase your car, or if the car is in the model year in which the insurance is purchased. Most car insurance companies have a cap, either in a dollar amount or in percentage, for total gap payout. For example, Progressive Insurance caps coverage at 25 percent of the vehicle's actual cash value. Progressive estimates that it costs roughly $20 for the average six-month policy.

"Gap coverage can only be purchased on a vehicle that has both collision and comprehensive coverage and a loss payee or lienholder," says Leah Knapp, spokesperson for Progressive. "The coverage can be purchased on any age vehicle, at any time during a policy term. A vehicle purchase date is required."

If you belong to a credit union, you may be able to strike a better deal than through your insurer. Several credit unions offer not only standard gap insurance, but also cover a certain portion of your deductible. They also allow you to purchase gap insurance over a wider time range, often up to 18 months after you purchase a new car, and many offer the coverage for a one-time fee that will cover you for the life of your loan.