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Does Gap Insurance Cover Theft?

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If your car is stolen and damaged beyond repair in the process, you may be wondering how you’re going to pay off your car loan or lease. Certain insurance plans only cover the market value of your vehicle, which may be less than what you owed on the vehicle, which is where gap insurance can help. Gap insurance covers the difference between the market value of your car and what you still owe. Keep reading to learn how gap insurance works if your car is stolen before you have it paid off.

What Is Gap Insurance?

 Gap insurance is a policy that pays the difference between the vehicle’s market value and any amount owed on a car loan. Since cars depreciate once they leave the lot, the market value can result in you owing more on your vehicle than it’s currently worth. Gap insurance can help you recover this difference to pay off your vehicle loan.

When you purchase your vehicle, you can often add this type of insurance to your finance package. If you already purchased your vehicle without gap insurance, contact your insurance company to ask if you can add this to your policy for an additional cost. Many will allow you to, but some may not, particularly if you’ve already owned the vehicle for a period of time.

Does Gap Insurance Cover Theft?

Gap insurance can cover theft as long as the insurance company deems the vehicle an unrecoverable loss. This means that even if the vehicle is found or returned, there was enough damage to it for the insurance company to classify the car as a total loss. Each state and insurance company defines a total loss somewhat differently, so it’s a good idea to research what your state and insurance company consider a total loss.

How Much Does Gap Insurance Cost?

The cost of your gap insurance can vary between providers and depends on when you buy it. If you add your insurance to your finance package, dealerships include the amount into your loan. This means that your gap insurance is valid until you pay off your vehicle, but keep in mind that you’re also going to be paying interest on your car loan with that lump sum added to it. The average sum added to your finance package is often between $400 and $700, which can be more expensive than getting gap insurance through your own provider.

If you opt to add gap insurance with an insurance provider, the average annual cost is between $20 and $40 per year. This equals between $2 and $3 per month. Another benefit of adding this insurance to your vehicle’s current policy is that you can cancel it when you want, so when you owe less than the car’s worth, you can remove this insurance from your policy.

What Does Gap Insurance Not Cover?

Gap insurance doesn’t cover damage resulting from the theft of your vehicle and instead only helps to cover the difference between the amount owed on the vehicle and the current market value of the car. If you want coverage to help compensate for repair costs, you might consider other types of insurance for your vehicle, like comprehensive coverage. Some other items that gap insurance may not cover include:

  • Rental car usage
  • New car purchase
  • Extended warranty coverage
  • Medical expenses
  • Car payments

When Should I Consider Gap Coverage?

Gap coverage isn’t mandatory but is recommended for a variety of situations. Here are some reasons to consider adding gap insurance to your vehicle’s policy:

  • You put less than 20% down on your vehicle
  • You rolled over a loan balance to help finance a new vehicle
  • You currently lease the vehicle
  • The vehicle’s market value depreciates faster than other models
  • Your auto loan term is 60 months or more
  • Your vehicle has high mileage

If you pay for your vehicle outright or you owe less than what the vehicle’s worth, there’s no reason to purchase gap insurance. If you purchased the vehicle with gap insurance as a part of the finance package, the policy is still active, but you’ll more than likely receive no payout from gap coverage.

How Does Gap Insurance Work?

If your vehicle is stolen and deemed unrecoverable, there are several steps to take to have your car insurance cover your loss. The first step is to file a police report and submit that report to your insurance company. Many insurance companies outline how soon you have to accomplish this in order to file a claim on your vehicle. From there, your insurance company can determine if your vehicle is a total loss and may outline a specific time frame until they classify it as a total loss.

After your car insurer makes a final decision about your vehicle, they’ll compensate you for your vehicle, which then you can then use to pay off your vehicle’s lease or loan. This is when you’ll also receive the gap insurance funds, so you can pay off the complete amount of your lease or loan. For example, if you owe $23,000 and the current market value is $20,000, gap coverage can help cover the $3,000 difference so you can pay off the entirety of your vehicle.

What Other Policies Help Cover Theft?

Comprehensive coverage can help you pay for damage resulting from theft. This type of coverage can also help replace your vehicle if it’s stolen or repair damage equals more than the car’s worth. This type of insurance only covers the theft and resulting damage of your vehicle, not personal items left in the vehicle. It’s important to note that if you only have comprehensive coverage, your insurance company will only pay your car’s actual cash value minus your deductible. Gap insurance will help cover the “gap” between the actual cash value and how much you still owe on it. Comprehensive coverage can also help cover damage from:

  • Weather
  • Fire
  • Vandalism
  • Animals

Understanding what gap insurance covers can help you decide if adding this type of insurance to your car’s policy is the right choice for you. Comparing different rates and policy details can help you find the insurance policy that works best for you and your vehicle.

FIXD Research Team

At FIXD, our mission is to make car ownership as simple, easy, and affordable as possible. Our research team utilizes the latest automotive data and insights to create tools and resources that help drivers get peace of mind and save money over the life of their car.

We’re here to help you simplify car care and save, so this post may contain affiliate links to help you do just that. If you click on a link and take action, we may earn a commission. However, the analysis and opinions expressed are our own.

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About the Author

FIXD Research Team

FIXD Research Team

At FIXD, our mission is to make car ownership as simple, easy, and affordable as possible. Our research team utilizes the latest automotive data and insights to create tools and resources that help drivers get peace of mind and save money over the life of their car.

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