Gap Insurance: Australia's Ultimate Car-Buying Protection

Guaranteed Asset Protection (GAP) insurance is an optional type of insurance coverage that can be purchased in addition to a full coverage policy. It covers the difference between the amount of money owed on a vehicle and the actual cash value of the vehicle at the time of a total loss. This type of insurance is designed to protect car buyers who have financed their vehicle and have a high amount of outstanding debt. In the event of a total loss, GAP insurance will cover the difference between the actual cash value of the vehicle and the amount still owed on the loan, providing financial relief for car buyers.

What is guaranteed asset protection (GAP) insurance?

Guaranteed Asset Protection (GAP) insurance is an optional, add-on insurance coverage that helps pay your car loan if your car is lost or stolen and you owe more than the vehicle is worth. It is also known as Motor Equity Insurance, shortfall insurance, Equity Plus or Total Loss Assist.

GAP insurance is a type of insurance policy attached to your car loan that will cover you in the event of total loss. It will pay out the difference between what your comprehensive car insurer pays and the remaining finance amount in the event of total loss. It covers the difference between the amount of money owed on a vehicle and the actual cash value of the vehicle at the time of the loss.

The purpose of GAP insurance is to provide protection for car buyers who have financed their vehicle and have a high amount of outstanding debt on it. In the event of a total loss, such as in a severe accident or theft, the insurance company will only pay the actual cash value of the vehicle at the time of the loss. This can leave the car buyer with a significant amount of outstanding debt that they are still responsible for paying.

GAP insurance can be purchased at the time of buying a car, or it can be added later on as additional coverage. It is available for new and used cars and can be purchased through the car dealership or directly through an insurance company. The cost of GAP insurance varies depending on factors such as the make and model of the vehicle, the amount of outstanding debt, and the length of the loan.

One of the main benefits of GAP insurance is that it can provide peace of mind for car buyers who are concerned about the potential financial impact of a total loss. With GAP insurance, they know they will not be left with a significant amount of outstanding debt.

When is GAP insurance worth it?

GAP insurance is worth it in several situations. Firstly, if you have a long finance period, GAP insurance can be beneficial. This is especially true if you have a loan term of 60 months or longer, as you will likely owe more on your car than its value during this period.

Secondly, GAP insurance is worth considering if you have made a small down payment on your vehicle, or even no down payment at all. In this case, you may owe more than the car's current value, and GAP insurance can help cover the difference. A general rule of thumb is that if you have made a down payment of less than 20% of the car's value, GAP insurance may be a good idea.

Thirdly, GAP insurance is worth it if you have purchased a vehicle that depreciates quickly. This includes certain types of luxury cars, such as the Maserati Quattroporte and BMW 7, which can depreciate by more than 60% over five years. If you have a vehicle that loses value at a faster rate, GAP insurance can help protect you financially.

Additionally, GAP insurance is worth considering if you are leasing your car, as it is generally required for a lease. It is also worth it if you drive more than the average person in your area, as this can impact the value of your car.

Finally, GAP insurance can provide peace of mind and financial protection for car buyers who have financed their vehicle and are concerned about the potential impact of a total loss. It can be a financial relief if your car is involved in a severe accident or stolen, and you are left with a significant amount of outstanding debt.

However, GAP insurance may not be necessary if you have made a substantial down payment of at least 20% on your vehicle, or if you expect to pay off your loan in less than five years. It may also not be worth it if you have purchased a vehicle with a low-interest loan or if you have a low amount of outstanding debt.

When is GAP insurance not worth it?

GAP insurance is not worth it in the following scenarios:

• If you are not financing or leasing your car, there is no need for GAP insurance.
• If you have made a down payment of at least 20% on the car when you bought it, you may not need GAP insurance.
• If you are paying off the car loan in less than five years, GAP insurance may not be necessary.
• If you have purchased a vehicle that holds its value better than average, you may not need GAP insurance.
• If the amount you owe is less than the car's value or only slightly more, GAP insurance may not provide any additional benefit.
• If you can afford to pay the difference between the amount owed and the car's value in the event of a total loss, GAP insurance may not be needed.
• If you are leasing your vehicle or have a low amount of outstanding debt, GAP insurance may not be necessary.
• If you have purchased a vehicle with a low-interest loan, the benefits of GAP insurance may not outweigh the cost.
• If your comprehensive car insurance policy already provides sufficient cover, GAP insurance may be unnecessary.

How much does GAP insurance cost?

The cost of GAP insurance varies depending on where you buy it. Dealerships and banks charge a lump sum of up to $400 to $700 for GAP insurance, making them the most expensive choice. Since the sum is usually added to your auto loan, you will also have to pay interest on it.

The best deals on GAP insurance are generally available from car insurance companies, which charge as little as $3 per month or $40 to $60 per year for coverage. Instead of charging a lump sum, insurers include the cost in your regular premium payments.

For example, Progressive offers loan/lease payoff coverage as a policy add-on. This covers up to 25% of your vehicle's actual cash value. On average, this coverage costs $5 a month with Progressive.

Where can you buy GAP insurance?

You can buy GAP insurance from a variety of sources, including:

Insurance Companies

Major insurance companies such as Progressive, Nationwide, State Farm, and Allstate offer GAP insurance. You can typically add GAP coverage to an existing car insurance policy or a new policy, provided that your loan or lease hasn't been paid off. It is generally cheaper to purchase GAP insurance from an insurance company than from a dealer, and you won't pay interest on your coverage.

Car Dealerships

When you buy or lease a car, the dealer will likely offer you GAP insurance as part of your financing options. However, GAP insurance from a dealership can be more expensive as the cost of the coverage may be bundled into your loan amount, resulting in you paying interest on the GAP coverage.

Banks and Credit Unions

You can also buy GAP insurance from the bank or credit union financing your car. However, similar to car dealerships, the cost of GAP insurance is typically added as a one-time payment to your loan amount, resulting in interest charges.

Online Insurance Providers

If you don't have an existing auto insurance policy or your current insurer doesn't offer GAP coverage, you can buy GAP insurance online. This option allows you to quickly request quotes and find affordable policies.

Auto Loan Lenders

You can also purchase GAP coverage from a car loan lender or finance company. However, similar to dealerships and banks, you may end up paying more by going through this route compared to purchasing coverage from your auto insurance company.

Frequently asked questions