Having some level of car insurance is needed to legally be able to drive your car. However GAP insurance isn’t a legal necessity but amongst new car owners is a popular extra that can give you added security should your car be written off after an accident or if it is stolen.
If your car is written off or stolen, then although you will receive a payout from your comprehensive insurance which will amount to the current market value of your car before the damage, in most cases you will find that this is a lot less than what you purchased the car for. Especially if your car is newer.
What is GAP insurance?
Guaranteed Asset Protection Insurance is a separate insurance policy you can take out alongside your comprehensive car insurance. It is widely known that new cars depreciate rapidly in their first three years, losing as much as 60% of their original value.
In the event that you had to claim against your insurance after your car is written off you would only receive the amount for the current market value. This would leave a big gap between the amount that you originally paid for your car and the current market value, leaving you losing both your car and money. GAP insurance bridges that gap to ensure that you are not left out of pocket.
Do I need GAP insurance?
You do not need to have GAP insurance but there are certain circumstances where it may have added benefits.
For example, if you have secured a finance loan to purchase your new car, after an accident you could find out that the amount of money your insurance company is willing to pay you is a lot less than the remaining finance that you have. By having GAP insurance this will ensure that your finance loan is paid off in full.
What happens if I don’t have GAP insurance?
This all depends on –
- The level of insurance that you have
- The current market value of your car
The market value of your car is decided based on several factors –
- The make and model
- The age of your car
- How many miles it has done
If you have third party insurance then only damage to another person’s vehicle or property is covered, therefore any damage to your own vehicle is not covered and you would have to pay for any repairs. You would also not receive a payout from your insurance company should your car be written off. You cannot obtain GAP insurance if you have third party cover.
If you have comprehensive insurance but not GAP insurance then damage that is repairable will be covered by your insurance. However if your car is written off or stolen, then although you will receive a payout from your comprehensive insurance which will amount to the current market value of your car before the damage, in most cases you will find that this is a lot less than what you purchased the car for. Especially if your car is newer. Older cars do not depreciate as quickly therefore GAP insurance would have less benefits.
Is GAP insurance worth it?
This will all depend on your own circumstances, the age of your car and what your expectations are should your car be written off.
If you are buying a brand new car on finance then GAP insurance may be a great added bit of security for you, however if you are buying a used car that is six years old the benefits would be far less.
Many insurers will not offer GAP insurance on cars over seven years old for this very reason.
If you are still undecided then you can either speak to the dealership when you purchase your car as many do offer GAP insurance or you can contact insurance companies directly for a quote. Knowing how much a GAP insurance policy will cost you and the benefits you will receive may help you to make your decision.