GAP insurance can protect you from the unexpected, but is it really worth it?
What is GAP insurance?
Guaranteed Asset Protection (GAP) Insurance also known as Shortfall Insurance, insures the gap or ‘shortfall’ between what you owe on your car loan and the insurance amount that is paid out if your car was to be deemed a total loss no matter whether it was written off or stolen.
When would I need GAP insurance?
GAP insurance is most valuable when you are either looking to purchase a new or near new vehicle and or not looking to put down a sizable deposit. This means that your loan to value ratio will be higher and there is a higher risk of having a gap if your vehicle was to be written off.
As an example, let’s say you purchased a brand new vehicle for $20,000 and forgot to put the handbrake on when you got home. Consequently, it rolled down your street into a parked car. Now that’s an extremely unlucky situation, but these things happen every day. Now you did have comprehensive insurance which is great, however your insurer pays out the agreed value on your vehicle of $18,000. GAP insurance makes sure you’re not out of pocket for the additional $2,000 still left owing on your loan.
Now let’s take a look at another example, you have a $40,000 loan for your pride and joy, a convertible BMW coupe. A huge truck loses control and accidentally hits your car while you’re eating lunch with friends. Your BMW is deemed a total loss and while the truck’s insurer pays out the agreed value of $35,000, this doesn’t cover the outstanding loan amount. Now we know newer cars depreciate in value but how are you going to come up with a spare $5,000 to pay out the remaining loan on a car you no longer have? Thankfully GAP insurance not only covers the outstanding loan balance but some policies also have options to cover extras such as your excess payments and costs of replacing your vehicle (if your comprehensive insurance doesn’t cover it) as well as fees and charges payable on your new vehicle such as delivery charges, registration, CTP, insurance premiums and stamp duty.
Do I need GAP insurance?
If your vehicle deposit was less than 10-20% of the vehicle price, it is possible that you could owe more on your car than your insurer’s agreed value of your vehicle. Under these circumstances GAP insurance may be beneficial for you and may assist you to pay off your loan in the event your vehicle was written off or stolen.
GAP insurance can offer great peace of mind knowing that you’re covered if something was to happen to your vehicle and you won’t be left out of pocket to payout your loan. It also offers peace of mind that your Credit Rating isn’t in danger in the event that your vehicle is written off and you can’t meet the remaining loan repayments. In some cases, GAP insurance can also assist in the purchase of a new vehicle by providing you with additional funds. Generally, GAP insurance can also be combined in your vehicle finance thereby providing peace of mind all wrapped up in your single, affordable monthly finance repayments.
For more information about GAP insurance or to obtain a Product Disclosure Statement, please contact one of our friendly staff on 1800 538 287 who will be more than happy to answer any questions you may have.