Gap Insurance And Why You Need It

GAP Insurance, short for Guaranteed Asset Protection. Designed to work alongside your standard insurance. Topping up the difference between what they will pay, and what you’ll need in order to get back on your feet after a loss.

It protects you from having to pay the difference between what your car is worth and what you owe for it. If you're buying a vehicle with a high depreciation rate or are otherwise expecting the value of the vehicle to be lower than the balance of your loan, gap insurance is probably a great idea.

If you did not purchase gap insurance and your vehicle is totalled or stolen, you will owe a balance of your car loan above the ACV payment. You are legally responsible for paying the full balance owed to the lender, even though you no longer have your car and may need to finance the purchase of a new one.

If you bought a used car, gap insurance isn't as useful. This is because a used car won't fall in value at the same rate as a new car. On average, a three-year-old car's value will drop 14% in the first year, 24% in the second and 33% in the third year.

It costs as little as £2.20 per month or £26 per year in your car policy compared to hundreds when added to a car loan. GAP coverage offered through car dealerships and banks ranges between £290 to £650 as a one-time charge which is then added to the car loan.

A GAP insurance policy, which generally lasts for three years, is designed to avoid this problem by paying out the difference between the amount you receive from your car insurance provider and the amount it costs to replace your car.

In the motor market, some of the relevant insurance products regulated under ICOB include payment protection insurance (PPI); guaranteed asset protection (GAP) insurance products such as Return to Invoice (RTI) GAP insurance and some breakdown, recovery, and warranty products.

Can you take out gap insurance after twelve months?

If you buy a new car and your insurer will replace it with a brand-new vehicle while this is less than twelve months old, then you will not want to over-insure yourself during this time.

In the end, the decision to buy GAP insurance is up to you. It's not a scam in the way that some auto scams simply take money from a car buyer without giving them anything in return, shop around as you can usually find a better deal than you would at a dealership.

GAP insurance cover does not only extend to vehicle sales and you should explore the option of taking out gap cover, as it helps when you really need it.