When you buy a new car, the last thing that you want to think about is it being stolen or written off. Although it is an unpleasant thought, it is important to plan so that if the worst does happen, it won’t be as stressful if you have already prepared for the eventuality. You may consider getting GAP insurance to give you a little more protection, but is it worthwhile?
What is GAP insurance?
Guaranteed Asset Protection (GAP) insurance is a form of cover that you can purchase when you buy a new car in order to cover the difference between the amount that you paid for the vehicle and the amount that your insurer would pay out if it was stolen or written off.
Brand new vehicles are typically hit pretty hard by depreciation in the initial years of their life, but if your car is stolen or written off, your insurer will only cover the cost of what it is worth at the time of the incident. This means that if you want to replace the vehicle for a brand new version of the exact same model, the amount you receive from your insurance provider is likely to be significantly less than the price of a replacement model.
The difference between the price you initially paid for your car and the amount that your insurer pays out is what is covered by GAP insurance.
Do you need GAP insurance?
It is not essential to purchase GAP insurance because your insurer should already cover the cost of a replacement car which is similar to the age and condition of the one that you’ve lost. GAP insurance is an optional extra that will be useful if you are going to want to buy a brand new replacement car. GAP insurance is also useful if you are in the middle of a finance agreement and you owe your lender more than your insurer provides.
Types of GAP insurance
There are three main types of GAP insurance:
Back to invoice
Back to invoice GAP pays you the difference between the amount that your insurer provides and either the original cost of the vehicle when you purchased it or the amount owed to your finance provider.
Vehicle replacement
Vehicle replacement GAP pays you the difference between the amount that the insurer provides and either the current market value of a brand new replacement car or the original cost of the car when you bought it if it was used.
Contract hire
Contract hire GAP is only applicable to those with lease agreements who have no option to purchase the car and it will cover any remaining payments owed on the lease after your insurance covers the cost of the current market value of the vehicle.
Is it worth it?
GAP insurance is optional so you will need to decide whether or not it is right for you. If you are going to want a brand new replacement car or you have used a finance plan to purchase the vehicle, GAP could be beneficial. Alternatively, if you would be happy with a replacement car which is not brand new and worth less than the amount you originally paid for your vehicle, it may not be as useful to you.