Guaranteed asset protection, or GAP insurance as it’s more commonly known, covers the difference between the amount you paid for you car and its present value.
Often something that’s offered to you when buying a car new, chances are you dismissed it as and unnecessary extra being pushed by the retailer, but is GAP insurance actually worth considering?
For its holders, GAP insurance adds an extra blanket of financial reassurance, especially with newer vehicles, so what is it and who does and doesn’t need it?
What Is GAP Insurance?
GAP insurance is designed to negate the significant value drop off new cars experience thanks to depreciation. It’s true that as soon as the keys are handed over and you roll off the forecourt, your car’s value will drop anywhere between 15-35%. After three years, you can expect your new vehicle to have lost at least half of its value.
Should you get into an incident where your car is written off or stolen, conventional insurers will pay out its current value rather than the figure you paid when you bought it. With such heavy depreciation in the new car market, there will likely be a significant ‘gap’ between the amount you once paid and the compensation you receive.
GAP insurance will bridge this ‘gap’, making it excellent value if you are ever unfortunate enough to completely lose your vehicle.
When Should I Get It?
Whether you need GAP insurance depends entirely on your vehicle, how new it is and the rate of depreciation you’re likely to experience.
GAP insurance is a good move for newer car owners who are set to feel the effects of depreciation the hardest and don’t want to face that financial hit in the case of an incident, or those who want a brand-new car as a replacement rather than just any car.
It also makes sense if you owe money on a finance plan, as even after your insurer has paid out, you will still carry on paying your finance deal as per your agreement when you got the car. GAP insurance would mean that loan could be paid off sooner and lift a big financial weight off your shoulders
When Should I Avoid It?
GAP insurance presents good value for some but not for others. It’s really centred around the new car market, but even some new car situations don’t need GAP cover. Essentially, if you’re not concerned about depreciation, then GAP insurance isn’t for you.
If you’d be happy with a general replacement rather than a sparkling new motor, then you don’t need GAP cover.
GAP insurance is also less effective with used cars which have experienced the majority of their depreciation before being bought; the value gap over your ownership period simply won’t be anywhere near as large. That said, some used car owners still take advantage of cover if they feel notable depreciation is still an issue.
Finally, if you own a new car less than a year old, most fully comprehensive insurance policies offer a ‘new car replacement’ feature during the first 12 months. This means if you lost your car in the first year, you’d receive a brand-new replacement, which nullifies GAP.
Overall, GAP insurance can present exceptional value in the right circumstances, particularly for newer vehicle owners. Providers like ALA offer reliable and trusted GAP cover, which usually comes in at around £100-£300 for three years of cover.
So, if you’re depreciation conscious, GAP insurance could be the move.