GAP Insurance

Do you need this?

When buying a car, you may be offered the option of signing up for GAP insurance (Guaranteed Asset Protection) and there are three types to consider – finance GAP insurance, return-to-invoice insurance and new car GAP insurance.
All three types work on the basis that cars depreciate as they become older. If - worst case scenario - the car was stolen or written off in an accident, this can leave you in the situation of being left with a big bill to pay, as you may owe more finance than the car is worth at that point.
So, who is GAP insurance most relevant for? It’s aimed at targeting people buying a new car on finance; however, anyone buying a car which is under ten-years-old from a VAT-registered dealer can buy it.

Finance GAP insurance
This will pay the finance company enough to cover your debt.
Return-to-invoice insurance
This is also known as Back to Invoice insurance. This tops up the insurers’ payment to what you paid for the car in the first place.
New Car GAP insurance
This will pay you enough to buy an equivalent car to the one you lost.
Risks of GAP insurance
  • GAP insurance is not suited for everybody. Look at what is included within your finance deal as you may already be covered; you might be able to afford to make up the difference, or your car insurance may offer ‘new car replacement’ for the first year of owning the car.
  • This doesn’t necessarily cover you for any extra bits added to your car after you’ve bought it – this can include anything from an upgraded sound-system or new alloy wheels.
  • It won’t cover you for anything deducted by your insurance company like unpaid premiums and some policies won’t cover you for the balance if you agree to a below-market value for your car.
To conclude, here are a few reminders to consider during the process:
  • If dealers are selling GAP insurance alongside the sale of a car, they should give customers enough info to shop around and make a more informed decision, and give a four-day deferral period, so people can first learn about GAP insurance, and buy it on the same day. There will also be a “cooling off” period in which you can cancel without any issue.
  • Car dealers must give customers clear information explaining the total cost of GAP insurance, benefits, limitations and features of the policy, let customers know they could look elsewhere, explain the duration of the policy, whether it is optional or compulsory, and when the GAP insurance contract can be finished.
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