What is gap insurance?
Imagine that you have been in a road accident and your car has been written off as a result of the damage. If you purchased your car on finance and your vehicle has since depreciated in value, the amount that your insurer will give to you may be less than the amount you have financed it for. Nonetheless, you’re still going to have to pay back the loan, placing you in a negative equity situation.
Vehicles depreciate from the moment that you buy them, so this is a very common occurrence. However, if you have taken out gap insurance, you don’t need to worry.
‘GAP’ stands for Guaranteed Asset Protection – it is the difference between the price that you paid for your car and the amount that your insurance company would give you if your car was written off or stolen.
Why might you need gap insurance?
You owe money to a car finance company
When only a brand new car will do as a replacement after your car has been written off
What types of gap insurance are there?
There are three types of gap insurance to choose from:
- Return-to-invoice insurance – acts as a top up to your usual car insurance so you get back exactly what you paid for your new or second-hand car
- Finance gap insurance – pays off the full amount owing to the finance company so you are debt-free. Bear in mind that you will have no car and you will not receive any funds for yourself to buy a replacement
- Vehicle replacement gap insurance – gives you your money back and some extra cash so you can replace your lost car with a new one.