If your vehicle is stolen, the amount you still owe on your car loan or lease is the last thing you want to worry about. While comprehensive car insurance may cover the theft, it probably won’t cover the full amount you owe. That’s where gap insurance steps in, bridging the gap between your vehicle’s fair market value and the outstanding amount of your car loan or leasing agreement.
Does gap insurance cover stolen vehicles?
Vehicle theft is covered by comprehensive insurance. If your car is stolen and cannot be recovered, your insurer will declare it a total loss and compensate you for the vehicle’s actual cash value (ACV), minus any deductible you have. But if you have a car loan or lease, the balance is probably greater than the vehicle’s ACV, meaning you will still owe money.
This is where gap insurance comes into play. Gap insurance covers the difference between what your insurance company pays out and what you still owe on your vehicle loan or lease. Without gap insurance, you’d have to pay this difference out of pocket.
What does gap insurance cover, and what it doesn’t?
Here’s what gap insurance policy covers:
- The difference between the loan/lease and the car’s market value: If your car is totaled in an accident or stolen, gap insurance will pay the difference between what you still owe on your loan or lease and the amount the insurance company reimburses you for the car’s actual cash value.
- Your deductible: Some gap insurance policies may cover your insurance deductible, so you don’t have to pay it out of pocket.
What gap insurance doesn’t cover
- Repairs for damaged cars: Gap insurance does not cover repair costs for still-operational vehicles. Depending on the damage, your collision or comprehensive insurance will cover that, assuming you have this kind of insurance coverage.
- Routine maintenance: Gap insurance does not cover maintenance or service costs, such as oil changes, tire replacements, or other repairs. These expenses are considered normal wear and tear, which the owner must pay for.
- Cosmetic damage: Gap insurance doesn’t cover damage that doesn’t affect the car’s ability to function, like scratches or minor dents. Your collision or comprehensive coverage may apply, depending on the cause of the damage, but you’ll still have to pay a deductible if you file a claim.
- Negative equity from other sources: Gap insurance won’t help if you have other types of loans or debts unrelated to your car.
Can I get gap insurance after my car is stolen?
As with all forms of car insurance, you must have a policy in place and active before an accident if you expect compensation for your losses. You also must have the correct form of coverage to make a claim. You cannot purchase insurance after the fact and expect to be reimbursed for your losses.
Liability insurance, which is mandatory in nearly every state, only pays for physical damage or injuries you cause others. Collision insurance covers your vehicle if you strike another car or collide with a stationary object like a fence or garage, while comprehensive insurance applies to damage and loss from theft, vandalism, fire, extreme weather, and so on. Both collision and comprehensive, which are part of full coverage car insurance, are optional forms of coverage for most drivers unless you have a loan or lease.
Gap insurance is designed to cover the difference between what you owe on your car loan or lease and the actual cash value (ACV) of your vehicle in the event of a total loss, such as theft or an accident. It, too, is optional unless required by your financial agency or leasing company.
Does gap insurance cover the cost of rental cars if my car is stolen?
No, gap insurance does not cover the cost of a rental car if your vehicle is stolen. If you need a rental car while waiting for your insurance claim to be processed, you would need rental reimbursement coverage, an optional add-on to your auto insurance policy. Otherwise, you will have to pay for a rental out of pocket.
Final thoughts
Gap insurance can be a lifesaver if your car is stolen or totaled. While it doesn’t cover everything, such as rental car costs or damage repairs, it can offer peace of mind if your vehicle is stolen or declared a total loss and you still own money on the lease or loan.
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