GAP Insurance – what is it and do you need it?

It can seem these days as though there is insurance for everything. Car insurance, life insurance, pet insurance – the list goes on.

So when you hear of another insurance policy it’s easy to make a knee jerk reaction about it. Usually this reaction is “not another thing to pay for”, but for other people it’s “well I don’t really understand it but I should probably just get it anyway to be on the safe side”.

Neither of these reactions is good. You should never pay for insurance unless you understand it and are sure you need it, but equally you shouldn’t just dismiss it without proper consideration.

GAP Insurance

GAP insurance is one such product you should think carefully about. Guaranteed Auto Protection is an additional type of insurance that you can take out when you buy a car with a loan. When you buy your car, you take out a loan based on the value of the car at that time. But your car will start to depreciate in value the moment you drive it out of the dealership. If your car gets stolen or written off, your car insurance will cover you but they will only pay you what your car is worth now, not what it was worth when you bought it. So if your car was worth £8000 and you took out a loan for this amount you will still be liable for the full amount of the loan but your insurance company will not pay you the full £8000.

GAP insurance quite literally covers the gap between what you owe and what your car is worth. This can sometimes be thousands of pounds.

You should consider GAP insurance if:

  • You want peace of mind that should something happen, you don’t have to worry about finding the extra money to pay off the loan.
  • Your car is quite expensive, new or a luxury car – these depreciate in value faster than other cars.
  • You don’t feel confident about where you park your car and worry about it being stolen.

If your car has a low depreciation value or if you really can’t afford the additional payments, then consider GAP insurance policies carefully. As with all insurance policies, it could end up being something that never pays out, so some consider the “dead money” to be a waste. However it is important to consider that having a car stolen or written off is a stressful enough situation without worrying about money too, so the added financial protection really can be hugely helpful.