Some insurance policies offer a greater degree of protection than others. Sometimes, you’re covered up to the value of the car if you’d have sold it at the point of the damage being inflicted.
So, if you were to buy a car new and write it off on the way home, you’d be out of pocket for the depreciation that happened when you bought it.
Even if your situation isn’t quite as extreme as this, you might still be out of pocket. Many cars lose around half their value in just three years. That can often mean thousands of pounds lost. Of course, there are certain types of insurance that protect against this possibility.
They’ll refund you the full price for the new car, and thereby provide peace of mind. This type of insurance is known as GAP insurance.
What is GAP insurance?
You might suppose that the ‘gap’ here refers to the gap between the price that you paid the dealer, and the amount of money that the insurer will dispense in the event of a write off. But the term is actually an acronym, standing for Guaranteed Asset Protection.
GAP insurance isn’t just designed to protect your investment, but to prevent you from becoming indebted to the finance provider for an asset that you no longer own. The insurer typically won’t replace the car entirely, but they will provide you with the money needed to secure a car of the same make and model.
Types of GAP insurance
GAP insurance comes in several different types, each of which will suit the needs of a different motorist. Let’s run through some of the more common.
Finance GAP insurance
This is the standard sort of GAP insurance. As we’ve discussed, it will cover the amount you paid for your car.
Negative Equity GAP insurance
In some cases, the cost of settling up with your finance provider will be higher than the cost of a new replacement car. This often comes about when you’ve transferred an existing debt as part of a part-exchange.
Vehicle Replacement GAP instance
This kind of GAP insurance will cover you for the cost of a new car, bridging the gap between your insurance pay-out and the cost of the replacement.
Lease GAP insurance
If you’re leasing your vehicle, then you might instead consider this specialised form of GAP insurance, which will help you to cover the rest of your contract, and deal with any early cancellation fees that you might incur.
