Written by Karen Bryan
When we were ordering our new Skoda Fabia, just before Skoda ditched their Zero VAT offer, the car salesman mentioned Guaranteed Asset Protection (Gap) insurance. Gap insurance will pay the difference between the current market value of your car, i.e. what your motor insurance policy will pay out if your car is beyond economic repairs or is stolen, and the original purchase price, or the amount which you owe on any finance agreement in place to buy your car.
As an example, if a new car cost you £10,000 and it is written off after three months, the current market value of you car might only be around £9,000. The Gap insurance would pay out that difference of £1,000. To me, it’s a strange assumption that you would expect to replace a 3 month old car with a brand new car, rather than on a like for like basis with a 3 month old car. I suppose it could be harder to find an equivalent three-month old car, than a brand new one.
However, it gets more complicated if you have a finance agreement on your car. If the £10,000 car was written off after 3 months, it’s possible that you could owe more than £10,000 to the finance company. Under these circumstances, if your insurance company pay you £9,000, you’d not only have lost the £1,000 depreciation on the new car but you could have to find more money to pay off the outstanding balance of your finance agreement.
In my opinion, Gap insurance could be more useful when you have a loan or finance agreement to pay for your new car, than if you had bought your car with cash.
Skoda quoted £349 for three year Gap insurance on a Fabia costing £11,000. I did a quick search online and found three year Gap insurance for a car worth £11,000 for £109.
As with all insurance products, you need to read all the terms and conditions of the policy carefully before purchasing. The cheapest policy may not be the best, you could get better level of cover for a few ponnds more.