Not everyone has heard of GAP insurance. Though if you’re looking into vehicle finance options, this might be something you could consider. GAP insurance, which stands for Guaranteed Asset Protection insurance, is something drivers can opt into, taking it out alongside their normal vehicle insurance.
Perhaps the main reason people choose to take out GAP insurance is for peace of mind. This type of insurance can offer additional protection, above and beyond what an ordinary insurance company may provide. We’ve explored the topic of GAP insurance in more detail below:
What is GAP Insurance?
GAP insurance is a type of car insurance that is often offered to people who have taken out a vehicle loan. The idea is that, if your vehicle were written off, you would have more than just your ordinary insurance payout to cover the costs. Your normal insurance company may offer a payout based on the estimated value of the car, which may not cover all the costs involved, let alone pay off a vehicle loan.
Essentially, if you write off a car that is on finance, with GAP insurance, you shouldn’t need to worry about paying damage costs, replacing the vehicle, or settling the outstanding balance on the loan. Your GAP insurance will make up the shortfall between what your insurance company pays out, and how much is still owed on any finance agreement.
Even if you’ve already paid off your car loan, GAP insurance can still be useful. Your insurance claim might be enough to allow you to purchase a similar vehicle, but what about a newer, more efficient model? If you wanted something a bit more expensive, you’d have to pay for the difference with your own funds, unless you had GAP insurance to contribute towards the costs.
GAP Insurance Example
To better explain the concept of GAP insurance, it’s best to use an example. Say that Jane bought her car on finance and has £15,000 worth of payments left. She is in an accident and her car is written off. Her car insurance policy will reimburse her for the current value of the car, which is £8,000. This means that even though Jane no longer has a vehicle, she still owes the financing company the £15,000, so has a shortfall of £7,000.
Without GAP insurance, Jane would either be without a vehicle and owe her car finance company £7,000 for a vehicle that no longer exists, or she’d buy a similar car to the one she had previously, and owe her finance company £15,000 for the written off vehicle. Either way, Jane would be incredibly out of pocket, and paying towards a car that had been scrapped.
This is where GAP insurance comes in - the GAP insurer would cover any shortfall, and may even be able to contribute funds towards Jane’s new car too. How much Jane would receive would depend on the type of GAP insurance she had taken out - you can learn more about the different GAP insurance options here.
Should I Get GAP Insurance?
While drivers are legally obligated to take out normal vehicle insurance, there is no such requirement for GAP insurance. GAP insurance is non-compulsory, and may be more useful for certain drivers. As mentioned above, GAP insurance is often given as an option for people who have taken out car finance. This is because replacing a car on finance won’t be the only consideration, if it’s written off - there’s also the matter of the outstanding loan balance.
There is no definitive answer as to whether GAP insurance is a good idea for you. This will depend entirely on your individual circumstances. The best question to ask is whether you could afford to pay off any outstanding finance on your vehicle, and have money left over for a replacement car, should your current vehicle be written off.
It’s also worth noting that if you took out a car loan to spread the cost of the vehicle, and have enough savings to settle the loan if necessary, GAP insurance probably isn’t necessary. But if not, GAP insurance can offer you peace of mind - even if your car is scrapped, you shouldn’t be liable for the costs.
Discuss Your Options With Wheelie Good Finance
Here at Wheelie Good Finance, we do our best to connect you with a suitable car finance lender. Simply complete our short online application form, and we’ll take it from there! We’ll search our network of reputable lenders, and if approved, you could be driving your new set of wheels within a few days!
And when it comes to GAP insurance, it’s often a good idea to speak to a professional about the choices available to you. You may find that this is not something you need, or GAP insurance can offer the assurance that if anything were to happen to your vehicle, you shouldn’t have to cover the shortfall. Get in touch today to discuss your options!