Buying a new car is exciting, but it can come with a few surprises, especially when it comes to depreciation. In just one year, a brand-new car could be worth several thousand pounds less than what you originally paid. This is where GAP insurance comes in. It might seem like just another policy car dealers try to sell you, but for some drivers, it can make a real difference.
What is Covered Under GAP Insurance?
Guaranteed Asset Protection is what GAP stands for. In the event that your vehicle is written off, it is intended to fill the difference between what your car insurance would pay. For example, in such a case, if you still owe £23,000 on finance and your normal car insurance would pay only the £18,000, GAP insurance would come in to cover that £5,000 shortfall. Without it, you would have to pay the difference yourself.
When is Gap Insurance a Good Deal?
GAP insurance offers real peace of mind for most drivers. This kind of insurance can be particularly beneficial if the following circumstances are true:
• Do you have a car loan or lease? You may be paying more for the car than its true value at the start of the loan or lease because cars have a tendency to depreciate quickly. You are shielded by GAP from having to repay a loan on a vehicle that is no longer yours. You made a small deposit or took a long-term loan, so the expense over many years can easily be overtaken by depreciation in which case GAP covers that gap.
• You have purchased a brand new car. New cars can lose as much as 20-30% of their value in the very first year alone, and GAP ensures that if the worst does happen, you do not get left out of pocket. If you’re not sure of the current market value of your car, you can run a HPI check to reveal its value along with a full history check.
• Be obliged to do so under the terms of your lease. Although some leasing companies require GAP as a condition of the contract, it may be well worth considering even when optional.
When GAP Insurance is Not Required
Not everyone needs GAP insurance, of course. You probably don’t need it if:
• You paid cash for your vehicle. Since you did not finance the vehicle, there is no “gap” to cover.
• You purchased a used car. Because used cars lose their market value at a much slower pace, the difference between what you owe and how much that car is worth is much smaller.
• Your insurance already offers new car replacement. Some comprehensive policies replace your car with a new one if it’s written off in the first year, so check before you buy extra cover.
How Much Does It Cost?
Most dealers charge between £300 and £500 for GAP insurance, though it’s often rolled into the finance package. Three-year policies from independent insurers typically cost between £150 and £250. It’s a good idea to compare prices before accepting the dealer’s offer.
Concluding Remarks
Quite simply, GAP insurance is worth it, depending on your situation. The protection against unforeseen losses is great if you lease, finance, or drive a brand-new car. However, for those owning their cars outright or buying used, the advantages are not as clear-cut.
Now ask yourself a few questions. Would you be paying more than the car is worth in case of a write-off? Can you afford the loss yourself without claiming? And does your existing insurance provide similar cover?
If those questions make you nervous, buying GAP insurance can be reasonable in order to give peace of mind on the road.
