Whether you’re saving up to buy a new car or you’ve decided on a finance option like PCP, HP, or a loan to help fund your new wheels, you might be offered GAP insurance as an additional cost.
But what is it and is it necessary?
What is GAP insurance?
When you buy a car from a dealership you may be offered additional cover in the form of GAP insurance. This cover helps protect you against depreciation if your car gets stolen or you’re in an accident and it gets written off.
It stands for Guaranteed Asset Protection, and it covers you financially for the difference between what you paid for your car and what a vehicle insurer will pay you in the event of a write-off or theft.
Why get it?
GAP insurance isn’t necessary for every driver, but if you’re new to driving or if you’ve had accidents in the past, it can provide you with that extra peace of mind. Given that there are an estimated one million uninsured drivers on our roads alone, it might be a prudent investment.
It’s especially useful if you’ve taken out a lease or finance agreement for your car. This is because if your car is written off, you are still responsible for paying off the balance outstanding on the lease.
Of course, buying a car is a big financial commitment and there are several costs involved. Aside from the car itself, you’ll have road tax and standard car insurance to think about, so you should consider your finances before you sign up for GAP insurance if you don’t think it’s necessary for you.
What does it cover?
While the exact terms of cover can vary from policy to policy, predominantly GAP insurance covers you against deprecation. Many GAP policies will also cover the cost of your car insurance excess payment, up to a certain sum.
You can get GAP insurance even if you buy your car from a private seller, and it’s also available for motorcycles and vans as well as cars.
It is most commonly associated with new vehicles, which can lose up to 60% of their value within three years. However, it can still be worthwhile if you decide to purchase an expensive used car.
How does GAP insurance work?
GAP insurance is just like any other insurance policy. You pay an agreed sum every month to cover you should your vehicle get written off or stolen during the policy period.
If you do encounter an accident or theft, your insurance company will pay out for the loss and you can then claim the amount on your GAP insurance.
Policies tend to last for anywhere between one and five years.