If you're unlucky enough to have your car stolen, or endure the stress of having your vehicle written off, you don't need the worry of wrangling with your insurance provider over the pay-out amount.

But the truth is most insurers only pay out the current market value of your vehicle, which can be significantly less than you paid for it. Indeed, research shows that a car can lose up to 60% of its purchase price value in the first three years. This shortfall can cause consternation, especially if you didn't go through the small print of your policy – and particularly if you bought your car new.

However, you can protect against such shortfalls with Guaranteed Asset Protection – or GAP – insurance.

Not all GAP products are made equal

GAP insurance products vary and are often sold when a car is purchased brand new. Some help cover the original price of a car, while others organise repayments on outstanding loans.

For the uninitiated, the world of GAP insurance can be confusing, with insurers offering a wide range of products, often with particular benefits and perks.

Some of the most common GAP insurance products are:

Finance Gap insurance

If you only know a little about GAP insurance, the chances are you know about finance GAP insurance. Put simply, it helps you pay off any outstanding loans on your car should it be classed as a write-off.

Return to invoice Gap insurance

This product helps you get back what you paid for the car, making up any shortfall between your regular insurance and the vehicle’s purchase price. Finance GAP cover is frequently bundled with this insurance type.

Vehicle replacement Gap insurance

This cover type makes up any shortfall between the pay-out sum and what it would cost to buy a brand new car. It also often includes cover for any outstanding borrowing.

Return to value Gap insurance

Not unlike return to invoice Gap insurance, rather than ensuring you receive the amount you paid for the vehicle, this cover type bridges the difference between your pay-out and what the car cost when you first bought it. This might be a more suitable solution if you've owned your car for a long time, or if you purchased a used car.

Lease Gap insurance

This type of GAP insurance covers the cost of the remaining lease contract and any early cancellation fees.


Do I really need GAP insurance?

While it can be easy to regard GAP cover as yet another annual out-going, in some circumstances it can be very much worth the premium.

Negative equity

This undesirable situation can arise when you owe more than what your vehicle is worth.

Common causes of negative equity:

  • You’re paying your debt off over a long period of time
  • Your type of vehicle depreciates quickly
  • You have high interest payments
  • Your credit down payment was small
  • You are required to pay a large ‘balloon payment’ at the end of the deal

In the event of theft or write-off, if you’d struggle to pay off your contract hire deal, or you would be unable to replace your vehicle, GAP insurance could be a prudent purchase.


Situations where GAP insurance might not be worth it

If your car is less than a year old and you have comprehensive car insurance, you will most likely be covered for full-value replacement. Read the small print of your policy carefully to determine if there are any exclusions or limits. For example, some products won’t cover you if your car is stolen, or if you are at fault in an accident.

You won’t need GAP cover if your finance deal covers any shortfall between the official current value of the car and what it cost you initially. Once again, read the small print of your finance deal with care.