To most people, GAP (Guaranteed Asset Protection) insurance is one of those extras you’re offered by pushy car salesmen.
This guide will help you understand the basics of GAP and help you to decide whether you need it and if it’s worth the extra cost.
What is GAP Insurance?
New cars lose their value very quickly. According to AA reports, the cars decrease in value by around 60% after just 3 years.
GAP covers the difference between the value of your car (which the insurer would usually pay out) and either the amount you paid for the car or the value of any outstanding payments if your car was to be stolen and not recovered or entirely written off in an accident.
For example, if your car was valued at £10,000 when it was written off or stolen but you paid £15,000 for it, GAP will cover the £5,000 difference.
So, if your car was written off after three years, your insurance company would only give you its current value (40% of what you paid for it). This probably wouldn’t be enough to afford a similar replacement car, and it may not to be enough to repay the outstanding balance if the vehicle was bought on finance.
Do you need GAP Insurance?
1. If you owe money to a finance company
If you owe more than your car is valued at, you risk being in negative equity. This is when GAP protection could be useful. For example, if the down payment for your finance deal was small, if you’re paying a lot of interest or if you are paying the debt off over a longer period. The shortfall between the car insurance settlement figure and the Purchase Price of your vehicle or, if greater the Early Settlement Amount that you owe to your finance company will be paid out.
2. If you’ve signed up for a long-term Contract Hire arrangement or Lease Agreement
Loss of the car might mean you end up owing the company more than your insurance provider will pay out. As explained above, the shortfall will be paid.
3. Purchased Outright
If your vehicle is written off and you had purchased the vehicle with cash from a dealer, the shortfall between the car insurance settlement figure and the Purchase Price of the vehicle will be paid.
GAP Insurance covers new and used cars.
If you’re thinking of getting a new car or want to understand whether GAP insurance is for you, speak to one of our team today on 01444 810 088.