Guaranteed Asset Protection (GAP) insurance is denoted as a financial tool that is offered when you purchase a new car. In the event when your vehicle is written off or sold for total loss, GAP insurance covers the difference amount between what your car insurance company has paid and the amount you initially paid for the car or any outstanding payment. Following are some important facts about the GAP insurance policy that you must be aware of if you are considering buying it –
Types of GAP insurance
Following are the prominent GAP insurance policies that you must be aware of –
- Vehicle Replacement GAP Insurance Policy:
This type of policy covers the difference between the amount you receive from car insurer and the amount your new car would cost. This means you are likely to get more than what you have paid for, granted that the cost of the car is rising.
- Return to Value:
Return to value, the amount you receive is the difference between the amount paid by car insurer and the market value of the car when you purchased it.
- Return to Invoice GAP insurance:
This type of policy covers the difference between the amount your insurance policy pays out and the exact amount you paid for the car when you purchased it. It can be used for buying new or second-hand vehicles.
- Finance GAP Insurance Policy:
The GAP insurance policy covers the difference between what your insurer has paid and what you still owed to the finance company. This means you are likely to have no cash in hand after your claim. However, you would not have to worry about debts.
Do you Need GAP Insurance?
GAP Insurance policy is certainly a beneficial policy to hold. However, it would not be useful for everyone. Therefore, prior to taking GAP insurance, it is important to understand whether it is worth the money. Following are certain situations where you would need GAP insurance –
- You have Taken a Huge Loan to Buy Your Vehicle.
GAP Insurance provides you with a reliable means of paying off your outstanding car finances. So, if your car is damaged beyond repair or stolen, then you don’t have to continue paying for it.
- The depreciation value of the car is a concern for you
Quicker your car loses its value; lesser will be the amount you will get from your insurance company. So you will get less amount than what you have initially paid for. With Gap insurance, you will get what you have paid for and in some cases, more than that.
- You have purchased a car on a long-term lease
If you have acquired a car on a long-term rental agreement with a mileage allowance, then post a write off, you will leave with no car and a huge heap of bills to pay. With GAP insurance, you can protect yourself from such situations.
Now that you know when GAP insurance would be useful, it is important to understand when it is not suitable as well. Following are certain scenarios where GAP insurance would not work for you –
- Your Car is Less than 12 months old
Good car insurance policies provide you with brand new car replacement within the first 12 months of ownership. In this case, you would not need GAP policy. Make sure to read the terms and conditions associated with the car insurance carefully in order to identify any exclusions and restrictions.
- When you are already covered by your finance company
If you are associated with a finance agreement that already covers you for the shortfall between the official value of the car and how much you are paid, then you will not require GAP insurance.
- You are financially strong enough to make up for the difference amount
If you are financially capable of covering the difference between what you paid and what you received from the insurance company, then you taking a GAP policy is not worthwhile.
Exceptions of a GAP Insurance Policy
Exceptions are crucial aspects to check before buying any kind of insurance policy. Following are some exclusions to a GAP insurance policy –
- GAP insurance policy doesn’t cover any amount that is deducted by your car insurance company. For instance, if your car insurer has deducted the amount due to unpaid premiums, contributory negligence salvage value, GAP will not cover that.
- It will only cover the excess amount up to Euro 250 of your claim. However, you can purchase an additional policy in order to cover the excess amount.
- GAP insurance will not cover any non-standard charges that you have included in the car after you have purchased it. For instance, it would not pay for additional satnav, sound system, etc. that you have added to the vehicle.
- This insurance policy will not cover any other insurance, road fund license, warranty charges, etc.
Factors to Consider Before Buying GAP Insurance Policy
Below are some important factors that you must consider before buying a GAP insurance policy–
- Car insurance policy may or may not benefit you. Therefore, make sure you determine the need for it before taking out a policy. If you don’t feel that you would make a claim, then you would not experience the benefits it renders.
- Taking out GAP insurance can be expensive. GAP insurances offered by dealerships are quite costly. Therefore, ensure that you do your research and evaluate your options before making a final decision.
- Similar to all insurance policies, GAP insurance also come with sneaky exceptions that people often miss out; make sure you pay close attention to the exception cases.
The Bottom Line
GAP car insurance policy is an optional, additional policy that you take with your car insurance policy. Similar to all other policies, this policy also has its share of pros and cons. It is up to you to thoroughly research and learn about various aspects and exclusions before determining whether it is worth the money.