Does Gap Insurance Cover Theft?

Gap insurance doesn’t cover theft, but it will cover the difference between the cash value and the amount owing on your car if it’s totaled in an accident.
Written by Andrea Barrett
Reviewed by Hillary Kobayashi
Gap insurance
(guaranteed asset protection) is an optional car insurance coverage that covers the difference between the actual cash value (ACV) of your vehicle and the amount owed on your loan if the car is totaled—it does not cover theft.
Imagine walking out of your house to head to work, only to find out that your car isn’t where you left it—it’s been stolen! While car theft is a big deal no matter the situation, a stolen vehicle with an outstanding auto loan can be an even bigger deal. What does this mean for your loan? Will your insurance cover it? 
We’ll walk you through what type of insurance covers theft, how gap insurance works, and how to add gap insurance to your existing
car insurance

Does gap insurance cover theft?

No, gap insurance does not cover theft—that is what
comprehensive insurance coverage
is for. 
The basis for purchasing gap insurance is that, once you buy a car and drive it off the dealer’s lot, the vehicle begins to depreciate in value. You’ll lose about 9% to 11% of the car’s value immediately
This means that if you’re just starting to pay off your car loan, the loan amount is likely to be greater than the vehicle's actual cash value (the depreciated value of the car, the car’s current market value). If you’re involved in an accident, and your car is deemed a total loss, gap coverage would help make up the difference. 
This is also why many lenders require drivers to carry coverage exceeding your
state's minimum insurance requirements
. Comprehensive and
collision insurance
only cover the actual cash value of the car, whereas gap insurance will cover the difference between the actual cash value and the amount you still owe on the loan agreement.
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How does gap insurance work?

Suppose you’re involved in a car accident and your insurance provider deems your car a total loss. In this case, you’ll need to
file a car insurance claim
, and your comprehensive or collision coverage will reimburse you for the car's actual cash value.
But if you’ve taken out an auto loan on this car and you still owe a good chunk of money, what happens if what your insurer pays out (the car’s actual cash value) isn’t enough to pay back your lender? This is where gap insurance coverage will help you out!
Gap insurance covers the difference (the gap, if you will) between the vehicle’s actual cash value and the outstanding balance on your auto loan. Sometimes, it could even pay your comprehensive or collision
insurance deductible
Here's an example:
Let’s say you bought a brand-new
for $25,000. You still owe $20,000 on your car loan when your Toyota gets hit and totaled in a collision! After talking it through with your
car insurance
provider, your collision coverage pays out your Toyota’s actual cash value—$17,000. 
Now, if you don't have gap insurance, you would have to pay $3,000 out of pocket ($20,000 minus $17,000 equals $3,000). However, if you have gap insurance, your insurer would pay the $3,000 to cover the total cost of your outstanding loan. Pretty nifty, eh?
Vehicle depreciation—which simply means that your car is going to lose value over time—is really important here. This is because most auto insurance policies will only pay out for the vehicle’s depreciated value (or the actual cash value, $17,000 in this example) if the car is totaled. This can lead to a discrepancy between the amount you receive from your insurance provider ($17,000) and the amount you still owe to your lender ($20,000).
Most people can’t afford to make car loan payments on a car they can’t drive (in this example, you would still have to pay $3,000 for your totaled Toyota if you don’t have gap insurance), so having gap insurance will cover the difference, so you don’t have to.

When do you need gap insurance?

Gap insurance is optional, but if you have an outstanding car loan on your vehicle, it may be worth purchasing. According to the Insurance Information Institute, a gap insurance policy only costs around $20 to $40 annually as an add-on to your insurance policy. 
Considering the thousands of dollars you could lose to depreciation if your car is totaled, this small investment is not a big expense!
If any of these scenarios apply to you, gap insurance might be worth it: 
  • You bought a new vehicle within the past year
  • Your down payment was 20% or less
  • The lease or loan term on your car is less than five years
  • You rolled over what you owed on a previous vehicle into your new loan
  • Your loan balance exceeds the actual cash value (ACV) of your car
  • You drive a lot (which increases depreciation)
  • You have a long payoff period on your car
It’s also important to remember that you don’t need gap insurance for the entire life of the car. It’s only good to have until the loan balance doesn’t exceed the car’s actual cash value.

How to add gap insurance coverage to your car insurance policy

If you’re interested in purchasing gap insurance for your car, you can get it through most dealerships, banks, credit unions, or car insurance companies. If you financed your loan through a bank or credit union, you could also try reaching out to them to see if you can add gap insurance.
If you can’t add gap insurance through your lender, it’s time to shop around with different
car insurance
providers to find the best rate. Note that you can’t always get gap insurance as a standalone policy. While some insurers will offer it, it’s generally more expensive on its own than adding it to an existing car insurance policy. 
If you currently have insurance, call your insurance agent and ask about adding gap insurance. 
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Gap insurance helps cover the difference between the car’s actual cash value and the outstanding balance on your car insurance loan in the event of a total loss. Comprehensive coverage pays for damages to your vehicle due to non-collision-related incidents like theft, vandalism, natural disasters, or various other unexpected causes.
Yes! You can buy gap insurance through your auto insurance company or car dealership. However, if you’re buying through a dealership, ask about whether gap insurance is included in the purchase of your vehicle.
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