What is GAP insurance?
GAP insurance stands for Guaranteed Asset Protection. It relates to several different types of insurance that cover a 'gap' between your car's market value, and how much it was worth when you bought it. Because cars depreciate in value very rapidly, in fact as soon as you drive off the forecourt, a difference can often emerge between how much you paid for your new car and what it is worth now.
If your car is stolen or involved in an accident that results in a claim, the settlement provided by your standard car insurance may not be enough to cover this difference in value. This is where GAP insurance comes in, by helping to cover this disparity so that you aren't left out of pocket.
GAP insurance comes in several different forms:
RTI GAP Insurance
RTI (Return to Invoice) means that the amount covered by your GAP insurance policy will be equal to the original price you paid for the car. So, if your car is written off and you need to make a claim, this insurance pays the difference between your claim settlement on your standard insurance and the amount you paid to buy the car.
RTV GAP Insurance
RTV (Return To Value) means that the amount covered by your GAP insurance policy will be equal to your car's current market value. If you need to make a claim this insurance pays the difference between your standard insurance claim settlement and what your car is worth now.
Finance GAP Insurance
Finance GAP insurance means the amount covered by your GAP policy will be equal to the sum of any outstanding loans or finance agreements on your car. In this case if your car is written off, this insurance will pay off outstanding loans so that you aren't left with no car but lots of debt.
Replacement GAP Insurance
Replacement GAP insurance means the amount covered by your GAP policy will be equal to the cost of replacing your written off car with a brand new one. So, if you lose your car through accident or theft you will be able to replace it with a new one of exactly the same make and model, usually even if the retail price of the car has increased.
Should I buy it?
When buying a new car you may be encouraged to purchase a GAP insurance policy, so that in the unfortunate event that your car is stolen or has to be written off, you'll have the peace of mind that the full amount you originally paid (and any outstanding finance on the car) will be covered.
GAP insurance exists because cars quickly lose value as soon as they are purchased and driven home. This depreciation in value can be dramatic and means that your car is likely to have a much lower market value than you might have anticipated very soon after buying your car.
A disparity between what your car is worth and how much you paid for it leaves a gap that standard car insurance doesn't cover. In this way GAP insurance may be worthwhile if you are concerned that you won't be able to meet this gap in cost yourself. You can find out how much your car might depreciate in value here.
GAP insurance may be helpful if you have, like many car-owners, used a car finance loan to enable the purchase of your new car. If your down-payment on your new car was relatively small and you still have much of it to pay off, GAP insurance will close the gap between the amount you owe and how much the car is worth.
This could particularly be the case if the interest rate on your car finance loan is high and you couldn't pay out for it through other means. However it's certainly a good idea to find out how much your current car insurance policy would pay out for the loss of your vehicle, so that you can determine if GAP insurance is in fact worth getting.
GAP insurance is usually taken out in addition to your standard car insurance policy, so you may not want to take on another expense, particularly if you think you will be able to meet any gap between market value and current value yourself, or if your car's market value when you bought it was relatively low. If you do decide to buy GAP insurance, make sure that you shop around as the first quote you are given may not be the most cost-effective.
It's also worthwhile checking your standard car insurance policy, especially if you have comprehensive cover, to see if a gap in value might be covered by this already. If your standard car insurance covers this loss in value then you won't need to buy GAP insurance.
Ultimately your decision on buying GAP insurance will come down to whether or not you feel able to cover any difference between your car's market value and the amount your insurer would pay out to replace your car with a new one if you need to claim.
GAP insurance is by no means essential to take out when buying a car, but can provide some peace of mind that in the unfortunate event of an accident or theft, this difference in cost will be covered by your insurance rather than your own pocket.