Car Guaranteed Asset Protection (GAP) insurance is an extra level of protection for cars with finance owing on them.
If you get into an accident and the car is written off, your comprehensive car insurance might not pay enough to cover what you owe to the bank or financier.
As the name implies, car GAP insurance bridges that gap. However, it can be a bit gimmicky and not always worth the cash.
Car GAP insurance in action
Car GAP insurance is simple in principle. If you have a car loan or have purchased a car under finance and get into an accident resulting in a total loss, GAP insurance will cover the difference between the amount your car insurance pays and the amount you owe the lender or car dealer. Depending on your comprehensive policy details, this amount will typically be the market value of the car at the time of the accident plus the amount left owing on your car loan.
The exception is if you have an agreed value car insurance policy, in which case your car insurance will pay that amount instead of the market value at the time of the accident.
GAP insurance can be particularly important when you consider the effect depreciation has on the value of a car.
Example
John bought a new $10,000 car using a car loan provided by his dealer. The terms of his loan states he needs to repay a total of $11,000 to the dealer. He insured the new car at market value with a comprehensive car insurance policy. The moment he drives it off the lot, his new car turns into a second-hand car and is now worth only $9,000.
Immediately after this, John gets into an accident and completely totals his new car. Fortunately he had comprehensive car insurance. He successfully makes a claim and gets reimbursed the total market value of the car, which is $9,000. Now he has no car and still owes his car dealer $2,000.
John could use his car GAP insurance to cover the $2,000 he needs to pay the dealer. Without GAP insurance, he would have no car and $2,000 of debt. With GAP insurance, he still wouldn't have a car, but he would at least be able to pay the remaining $2,000 without being out of pocket.
Is Guaranteed Asset Protection (GAP) insurance worth it?
GAP insurance is worth it if you're in any of the following situations:
You'd struggle to pay back a loan without the asset it was taken out for
You would be substantially out of pocket if your insurance didn't cover the full cost of your vehicle and loan
GAP insurance is not worth it is you can do any of the following:
Have an emergency fund of savings available to you in the event your car is written off and you still owe money on it
Gap insurance conditions to beware of
Payout conditions
GAP insurance policies will typically only pay out in the event of a successful total loss claim. If your car insurance policy, for any reason, does not pay the full sum insured, then your GAP insurance will not apply.
Loan conditions
GAP insurance is essentially insurance for your car loan and may have conditions. For example, if the loan has a very high interest rate, the insurer may reserve the right not to pay a claim. Your GAP insurance provider might not pay out in the following situations:
The loan has poor terms, for example if the loan is more than 110% of the car's market value.
The residual or balloon payment is more than 50% of the purchase price or the market value of the car at the time of purchase.
GAP insurance has limits on how much the policy will pay out. It's a good idea to make sure the limit on your GAP insurance is enough to cover the difference between the amount remaining on the loan and the amount insured by your car insurance.
"The best way to decide if you need GAP insurance is to do some quick calculations on what you owe vs what your insurer would pay out in the event of a total loss. If the difference is really substantial and scares you, perhaps GAP insurance is worth considering. If the difference is something you can afford to stash away in a rainy day savings fund, this is what I'd be suggesting. Then you can earn interest at the same time and have the peace of mind that you'll be okay if you ever find yourself in this circumstance."
GAP stands for Guaranteed Asset Protection. It's a form of loan insurance that is designed to bridge the gap between what your insurer pays you and what you owe on your loan or other type of finance. For example, if you owe $25,000 on your car but at the time of its write-off, your insurance gives you $20,000 - GAP insurance would pay the remaining $5,000 to your lender.
Typically, no. There are other, more financially savvy ways to ensure you can pay back your car loan in the event of a write-off. For those in financially vulnerable situations, it could be worth it - but the irony there is that it's expensive and these people are probably priced out of this product anyway.
If you're smart about how you comprehensively insure your car, you can eliminate the need for this altogether.
Peta Taylor is a publisher at Finder, working across all of insurance. She's been analysing product disclosure statements and publishing articles for over 2 years. Peta is passionate about demystifying complex insurance products to help users make well educated decisions with confidence. Peta is part of Finder's insurance awards team and works alongside editorial and insights experts to bring users the best insurance products every year. See full bio
Andrew Munro was the global cryptocurrency editor at Finder. During his time he covered all aspects of cryptocurrency and the blockchain. Before he became cryptocurrency editor, he was a content writer for Finder covering various topics over his nearly 5 years in the role. Prior to joining Finder he was a web copywriter. Andrew has a Bachelor of Arts from the University of New South Wales. See full bio
Hi
I got accident with my car on my name and I made registration but my separate husband put my private won his business full insurance and now I don’t want I can do… car is written off and how will get money
Finder
JohnFebruary 14, 2019Finder
Hi Suzana,
Thank you for reaching out to Finder.
You would need to have a conversation with your husband on what you could do with regards to your car insurance policy. You may also ask the assistance of Car Gap Insurance to review your policy coverage on the matter for you to be able to know how to claim your insurance. Hope this helps!
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Hi
I got accident with my car on my name and I made registration but my separate husband put my private won his business full insurance and now I don’t want I can do… car is written off and how will get money
Hi Suzana,
Thank you for reaching out to Finder.
You would need to have a conversation with your husband on what you could do with regards to your car insurance policy. You may also ask the assistance of Car Gap Insurance to review your policy coverage on the matter for you to be able to know how to claim your insurance. Hope this helps!
Cheers,
Reggie