Although most GAP insurance policies will cover the theft of a vehicle, consumers should be aware that this may not always be the case. GAP insurance was originally introduced as a form of protection for motorists with vehicles on a leasing contract or auto payment plan as a means of coverage against negative equity.
How does GAP Insurance work?
When a vehicle is leased or purchased on an auto payment plan, the motorist will be responsible for making a series of monthly payments under the terms of their contract. In the first years of a contract, the outstanding balance of the loan will usually be greater than the value of the vehicle. This effectively produces a ‘gap’ in finances which the motorist would be responsible for if the vehicle is irreparably damaged. GAP insurance provides cover to pay off outstanding balances if such an occurrence actually happens.
If a vehicle is eventually declared a total loss, a GAP insurance policy will cover the outstanding loan or lease payments once any deductible figures have been taken into consideration. However, GAP insurance should never be mistaken for total loss coverage. Although these two levels of insurance are similar, total loss coverage will only pay off the negative equity on a leased vehicle or one with an auto payment plan in place.
Some GAP insurance polices now provide cover for theft as well as accident damage. However, it is still imperative that motorists are aware of the terms and conditions of their GAP insurance policy to ensure that they are adequately covered. If you are still unsure as to whether your vehicle is covered for theft or not, speaking to your insurance agent or broker should help in finding an adequate solution.