GAP is short for Guaranteed Asset Protection, and it is a type of insurance that is often sold with a brand new car.
In the event your car is written off, it covers the difference between the value of your car (this is the amount your insurer will usually pay out) and the amount you paid for the car in the first place.
Even if your car insurance is fully comprehensive, if you car gets written off then you can still lose money, simply because cars depreciate in value very quickly.
So if you have a car that is 4 years old and it’s written off in an accident, your insurer is only likely to give you 40% back of your original investment, which will probably mean you can’t afford to replace it with a similar vehicle.
GAP insurance is designed to cover that difference and depending on the policy it can also cover any outstanding payments you still have to pay on it.
Do I need GAP insurance?
GAP insurance can be useful if you risk being in negative equity – say if you owe more on the car than it is actually worth. This can easily happen if you paid a small initial down payment, if you’re paying a lot of interest on your finance deal, or if your deal requires a final lump sum payment known as a balloon payment.
How do I take out GAP insurance?
Most insurance brokers will be able to sell you a policy. If you have bought your car on finance, check the terms and conditions of your deal before you take out a policy - this type of insurance is sometimes included. Make sure you shop around a bit and find the policy that best suits your needs.