Gap insurance, or Guaranteed Asset Protection insurance, is a valuable addition to your auto insurance policy, particularly if you have a car loan or lease. It covers the difference between the amount you owe on your car loan and the car’s actual cash value in the event of a total loss. But does gap insurance cover theft? Here’s what you need to know.
Understanding Gap Insurance
Gap insurance is designed to protect you financially if your car is totaled or stolen and you owe more on the loan or lease than the car’s current market value. This type of coverage is particularly useful for new cars that depreciate quickly or for loans with low down payments and long repayment terms.
Coverage for Theft
1. Total Loss Due to Theft
Yes, gap insurance generally covers theft if the car is deemed a total loss. Here’s how it works:
- Actual Cash Value (ACV): When your car is stolen and not recovered, or recovered but significantly damaged, your primary auto insurance policy will pay you the car’s actual cash value at the time of the theft.
- Outstanding Loan/Lease Balance: If the ACV is less than the remaining balance on your car loan or lease, gap insurance will cover the difference. This ensures that you are not left paying for a car that you no longer have.
2. Primary Insurance Requirement
Gap insurance works in conjunction with your primary auto insurance policy. For gap insurance to apply in the case of theft:
- Comprehensive Coverage: You must have comprehensive coverage on your primary auto insurance policy. Comprehensive coverage is what pays out for theft and other non-collision-related incidents.
- Claim Process: You need to file a claim with your primary insurance first. Once they settle the claim by paying the ACV, you can then claim the remaining balance with your gap insurance provider.
3. Deductible Consideration
While gap insurance covers the difference between the ACV and the loan/lease balance, it typically does not cover your primary insurance deductible. You will still need to pay the deductible out of pocket.
4. Policy Limits and Exclusions
Be aware of any limits and exclusions in your gap insurance policy:
- Coverage Limits: Some gap insurance policies have maximum payout limits. If your loan or lease balance exceeds this limit, you may still owe money after the gap insurance payout.
- Exclusions: Always review your policy for specific exclusions. For instance, if the theft was due to negligence, such as leaving the car unlocked or keys inside, it might impact the claim.
Example Scenario
Let’s say your car is stolen, and the following details apply:
- Remaining Loan Balance: $25,000
- Actual Cash Value (ACV) Paid by Primary Insurance: $20,000
- Insurance Deductible: $500
In this case, your gap insurance would cover the $5,000 difference between the loan balance and the ACV paid by your primary insurance, but you would need to pay the $500 deductible out of pocket.
Steps to Ensure Coverage
To ensure you are properly covered for theft with gap insurance:
- Verify Comprehensive Coverage: Confirm that your primary auto insurance policy includes comprehensive coverage and gap coverage.
- Understand Your Policy: Read the details of your gap insurance policy to understand the coverage limits and exclusions.
- Maintain Your Policy: Keep your gap insurance active as long as the loan/lease balance exceeds the car’s value.
- File Prompt Claims: In the event of theft, file a claim with your primary insurance promptly and follow up with your gap insurance provider.
Final Thoughts
Gap insurance can provide crucial financial protection if your car is stolen and deemed a total loss. It covers the gap between what your primary insurance pays and what you owe on your loan or lease, ensuring you’re not left with a significant debt for a car you no longer have. At Rate Frog, we help you compare insurance quotes and find the best coverage to suit your needs. Visit our platform today to explore your options and ensure you have comprehensive protection, including gap insurance, for peace of mind.