New car buyers tend to borrow more money for longer periods of time these days. You could be in a financial bind if your new car is 'totaled' in a crash in the first few years of ownership.

Auto liability insurance is mandatory in Illinois and lenders usually require physical damage (comprehensive and collision) coverage. Policyholders may not realize that total loss claims are paid according to the market value of the damaged vehicle when the loss occurs. The claim settlement is not connected to the outstanding loan.

This becomes an issue when the policyholder has a sizeable loan on the totaled vehicle. The difference between the claim settlement and the loan balance is the vehicle owner's responsibility. You could end up owing the bank thousands of dollars.

Gap (guaranteed auto protection) insurance is worth considering if you're buying a new vehicle with a small down payment and lengthy repayment period.

This add-on covers the difference between the total loss offer and the unpaid loan. Many auto insurers offer gap insurance if you buy a new vehicle, list a lienholder and purchase physical damage insurance.

A local auto insurance agent can provide cost and coverage details. Ask about vehicle eligibility, the time frame for adding gap insurance as well as payout caps. Periodically compare the market value of your new car to the amount owed. You can remove gap insurance when the difference between the value of your vehicle and your loan even out.