Is GAP Insurance Important?
GAP insurance, or Guaranteed Auto Protection insurance, reimburses car owners when the payment for a total loss is less than the outstanding loan or lease balance.
No, GAP insurance is not compulsory. It is an optional product and is not legally required when you buy or lease a new vehicle.
However, you should be aware that GAP insurance can only be taken out for a limited amount of time, usually within the first three months of having a new vehicle. If you are considering purchasing GAP insurance, make sure you buy it in time.
Does GAP insurance pay the full amount?
No, GAP insurance does not pay the full amount. GAP insurance is designed to bridge the gap between the amount your insurer will provide and the amount you’d need to pay to get an equivalent model if your car is damaged or stolen.
What does GAP insurance cover?
There are three main types of gap insurance, and what it covers will depend on which type your purchase:
- Back to Invoice – This type of GAP insurance pays you the difference between what your insurance provider will pay out in the event of your car being stolen or written off and the original amount you paid for it, or the amount you owe to the car finance company.
- Vehicle Replacement – This pays you the difference between what the insurer will pay out and what you would pay if you bought the car brand new. If it was a used car, the difference would be between what the insurer will pay and the price you originally bought the vehicle for.
- Contract Hire – This is only available for those who lease their vehicles with no option to buy it. The current market value of your vehicle will be covered by your insurer and the GAP cover will pay any remaining payments on the lease.
GAP insurance is often purchased for cars, but we also recommend that Vans and HGVs have GAP cover too.
Who would need GAP insurance?
GAP insurance makes sense for people who put no money down on a car and choose a long payoff period, since they may owe more than the current value of their vehicle.
Cars can depreciate quite quickly, with the average car losing 10% of its value in the first month after purchasing it.
Your insurance company may not pay the cost of replacing a brand new vehicle if your current one is damaged and written off. GAP insurance can help those in this situation to minimise their financial losses.
Is GAP insurance worth it for a used car?
Although they are more commonly used on new cars, GAP insurance policies can be used in conjunction with used cars. With many forms of finance agreements available for used cars, people can change their cars regularly, meaning that used cars are often found in great condition with low mileage.
However, used cars do not depreciate at the same rate as new cars. Since GAP insurance covers depreciation, and used cars depreciate much slower than new cars, this kind of policy may not be worth it.
Is GAP insurance worth it for a new car?
GAP insurance is often sold alongside new cars from dealerships, but you will find a lot of cheaper policies online, and it is definitely worth exploring.
If you purchase a new vehicle via any financial arrangement which incurs an interest charge, then you will likely be out of pocket from day one if your vehicle was to be written off in the first twelve months. The interest due to pay off the finance would be more than the value of the vehicle on its own. GAP insurance covers this difference; so, the more your car has depreciated, the bigger the payout will be and the more you will benefit from this insurance.
Is GAP insurance worth it on a leased vehicle?
If you have leased a vehicle, GAP insurance may be worth considering. If your car is written off or stolen before the end of your lease term, then your car insurance will only pay out what it’s worth at the time of claiming.
Due to interest rates and depreciation, the amount you will receive from your insurance company will not be as much as the outstanding finance on the lease agreement.
If you have GAP insurance on a leased car, it’ll cover the gap between the remaining amount you owe on the lease car and the sum your insurance will pay out, leaving you debt free.
Is GAP insurance worth it when getting a vehicle on PCP?
If you’ve used a PCP deal to help you buy your car, GAP insurance may be worth looking into. If you’ve bought a car on finance and it is stolen or written off, then the insurance payout you receive may not cover the remaining balance on the finance. If this is the case, you will either need to pay the remaining balance or keep paying monthly for a car you can’t drive.
GAP insurance will cover any difference between your car insurance policy and the total amount outstanding on your agreement. This will allow you to resolve any outstanding balances.
Is GAP insurance important?
As we’ve mentioned, GAP insurance is not essential, however, it can be worth the money you spend on it, especially if you have recently bought a brand new car.
If you know or suspect that your car is going to depreciate in value, then it is a sensible idea to invest in GAP insurance, since it will help pay the difference between your insurance payout and a potential sizable cost of replacing your vehicle.
