What is GAP Insurance?

If you've ever bought a car from a dealer before, you will know that when purchasing, you will get asked whether you want to include GAP insurance as part of the cost.

GAP insurance is the abbreviated version of Guaranteed Asset Protection insurance; it's a policy that helps to protect your car in the event of it being written off or stolen.

When you're buying a car, the dealer will often make GAP insurance out to be critical to get, to ensure that your car is protected if the worst were to happen.

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While it has plenty of benefits, it's often been discussed whether or not it's required, especially as you'll already have your car insurance policy that will cover a vast number of things.

In this article, we look at what GAP insurance is, whether or not you should get it and if it's necessary, and if you do choose to get it, where's the best place to purchase it from?

What is Guaranteed Asset Protection (GAP) Insurance?

A GAP insurance policy covers the difference between how much you paid for your car versus how much the insurance company would pay out if the vehicle was stolen or written off.

The reason why GAP insurance exists is because of depreciation. As soon as you drive your car off the dealer's forecourt, it starts to lose value, meaning it's worth less than when you first purchased it.

Within the first year of ownership, your car could have lost up to 40% of its value and 60% after three years. These figures may differ slightly depending on the make and model, but their value is still lost rapidly.

It's only after around three years that you may start to see your car coming into equity, which means that your vehicle is valued at a higher price than the amount still outstanding to the finance company.

If you were to get your car written off or stolen, your original insurer would pay out the money that the car was worth at the time of the incident. However, depending on how long you've owned the vehicle when it happens depends on how much your insurer pays you.

There's a chance that the money your insurer pays you is less than what you originally paid for the car, and that's where GAP insurance comes in, as it pays you the additional amount you would have lost from the vehicle's depreciation. 

Should I get GAP insurance?

GAP insurance is a good option for many, but it's worth researching before committing. If you've borrowed money to buy the car, it's probably a good option as you could be left out of pocket and unable to repay the money.

If you have a Personal Contract Purchase (PCP) finance deal, it could also be an option, as what your insurance company would pay you in the event of your car getting written off or stolen is likely less than the loan amount you took out.

GAP insurance is a security blanket as it ensures you will get all your money back if the worst were to happen. So if you're anxious about losing out on money, GAP insurance is a good option.

Also, if your car were stolen or written off and you would want a brand new car to replace it, having GAP insurance would ensure you can afford to get something new again.

Is GAP insurance necessary?

For others, though, GAP insurance isn't necessary, and if you are buying a car from a dealer, the chances are they will try to convince you that it is worth it and that you should take out a policy.

If you are buying a used car, it's probably not required as the vehicle would have already depreciated a considerable amount and probably doesn't have much value left to lose.

It means that if your used car was stolen or written off, the 'gap' between its value at the time of the incident and how much you paid for it is probably not that much different.

If your normal insurance is fully comprehensive, the chances are they will already cover you for loss or damage, thus making GAP insurance redundant for your circumstance.

Many insurance policies like that guarantee a new car replacement if the worst were to happen in the first year anyway, so before taking out GAP insurance, refer to your original insurance documents.

Additionally, if the worst happened and you needed to get a new car, if you aren't too bothered about whether the replacement is brand new, GAP insurance is probably not required.

Where should I buy GAP insurance?

You can get GAP insurance from the car dealer you are buying from, as offering this can help them to increase the commission they make from the sale. But they can't sell this to you at the same time they sell the car, as there is a 48-hour cooling-off period between being told the amount you pay and buying it.

It's generally much cheaper online, so if you know you want GAP insurance, politely decline the dealer's offer and shop around online to find a quote that should be much kinder on your wallet.