What Is GAP Insurance?
So What is GAP Insurance and Is It Right For You? If You're Buying a Car On Finance, It Is Definitely Worth Considering Before You Purchase Your New Car.
Dec 12, 2014
Would your car insurance cover you in full if your vehicle was written off or stolen?
Even if you think you have high quality cover, in the event of a claim your car insurance policy will generally pay out the current market of your vehicle not the amount you paid for it. If you’ve bought your car using finance, this could mean that you could be left out of pocket if you are involved in an accident.
To protect yourself, you can take out Guaranteed Asset Protection (GAP) insurance. But what is GAP insurance? What does it do? And why should you have it? Keep reading to find out everything you need to know.
What is GAP insurance?
If your car is stolen or written off, your insurer will settle your claim based on the current market value of your vehicle. This is often based on the trade price of the vehicle rather than the full retail price.
A GAP insurance policy is designed to pay the difference between this sum and the replacement cost of your vehicle or the outstanding finance, whichever is higher.
GAP insurance is important because, when you buy a new car, the vehicle will start to depreciate in value. GAP insurance protects you against the financial risk of being left out of pocket when your insurance payment is only based on the current value of your car, not the purchase price.
How GAP insurance can help you
If you were involved in an accident and your car was written-off, your insurance claim would be settled based on the value of the vehicle at that time, not the new price. In this situation your outstanding finance on the car may be higher than your insurance payout.
In this scenario, GAP insurance would help you by covering this shortfall.
insurance is a good idea if:
- You don’t want to be left out of pocket in the event of an insurance claim
- You bought your car using finance, especially where you have borrowed a high proportion of its value. As finance deals are normally spread over three to four years, you could be left with a significant shortfall if you have an accident or the car is stolen
- You have a contract hire deal. Here, if you have an accident, you could be left without a car and still owing thousands in finance payments
- Your car is likely to depreciate in value. The faster your car depreciates, the higher the likelihood that you will have a shortfall between its market value and an insurance payout
Why you should always consider GAP insurance
The Daily Telegraph advises that “without gap insurance you could end up having to keep paying the finance company for a car you can no longer use. So gap insurance does make sense.”
If you don’t want to be left out of pocket in the event of an insurance claim then it is a good idea to consider this cover. GAP insurance exists because of the fact that your new car may depreciate in value to the point where your car’s value is less than the remaining finance you have to pay were you to have an accident. If you don’t think you can pay any shortfall in the event of a car insurance claim then you should seriously consider this cover.
One of the best places to buy GAP insurance is from your new car dealer. These franchised dealers offer extremely good rates on GAP insurance and you can take ownership of your new car with the peace of mind that you’re protected. GAP insurance policies can be cancelled at any time so you’re not tied to the agreement. In the unlikely event that you wish to cancel the policy, you can do so at any time. If the policy is cancelled within the first 30 days a full refund is available, following this a pro-rata refund is available subject to an administration fee. Please ask your local dealer if GAP insurance is suitable for you. Please refer to the full terms and conditions of the policy and make sure the product suits your needs. Exclusions may apply.