What is GAP insurance and should you buy it?

We explain the peace of mind GAP insurance can provide and where to get the best value cover...

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Claire Evans
8 Nov 2018 11:20 | Last updated: 8 Nov 2018 17:20

If you buy a new car and it’s then stolen or written off, your insurance will only pay out the car’s current market value, not the amount you paid for it.

When you consider that an average car loses around 40% of its value in the first year and around 60% after three years, that means you could end up out of pocket.

Enter guaranteed asset protection (GAP) insurance; it covers the shortfall between what you paid for the car and the amount your insurer will pay out should it be written off.

What is GAP insurance and should you buy it?

GAP insurance is generally sold for cars up to 10 years old, and cover is available for one, two or three years. Although it can be purchased for both new and used cars, in general it is more useful for cars up to three years old, because this is when they lose value quickest.

What is GAP insurance and should you buy it?

Should you buy GAP insurance?

You don't have to buy GAP insurance; after all, your car may not be stolen or get written off. It’s also worth noting that many new car insurance policies will replace a brand new car if it’s written off in the first year, so check with your insurer before taking out GAP insurance.

However, there are certain situations where GAP insurance may be worthwhile:

1. Bought on finance

If you’ve bought a car using finance or a large personal loan it will help to cover the big shortfall that you’ll struggle to make up if the car is a declared a ‘total loss’.

2. Bought a car that'll lose value fast

If the car you’re buying will suffer steep depreciation, taking out GAP insurance is sensible because it will help to make up the difference between the insurance payout and the potentially sizeable cost of replacing the car.

3. Bought on a lease

If you’ve bought a car on a long-term lease and it’s stolen, you could be stranded with a hefty bill for outstanding finance – as well as the cost of replacing the car – so GAP insurance will help to protect you in this scenario.

Next: Find out which type of GAP insurance will suit you >

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