Guaranteed Asset Protection is worth a look
Buying a new car is an exciting event, but just consider there are cars out there that, after three years, are worth only about 25 per cent of what they cost new. Write off that car and what youâ€™ll get from the insurers is just a quarter of the amount you still remember forking out. For some thatâ€™s not good enough.
For them Guaranteed Asset Protection can be a worthwhile addition as it covers the gap between what you paid for the car and its current, diminished value. You could get GAP insurance for a car up to a decade old, but the area most focused on is the car in its first three years since thatâ€™s when the worst depreciation occurs.
This band of GAP insurance splits into five main categories:
This is the basic level that pays off any outstanding finance on the car. Higher levels will usually include this as standard.
2. Return to invoice
This is the most common level, since it pays the shortfall between what the car cost originally and what the insurance company will pay under the main policy if the car is written off.
3. Vehicle replacement
This is the most expensive option and allows you the money to go out and buy a new version of the car you lost, to the same spec. With prices going up every year, this is attractive.
4. Return to value
This is like No 2, but it tops up to the value of the car when you bought it, which makes it useful if youâ€™ve bought an expensive used vehicle.
If youâ€™ve leased a car and itâ€™s written off or stolen, this will pay for the rest of the contract costs and any early settlement fees.
So you have various options open to you, but GAP insurance isnâ€™t right for everyone â€“ for example some policies will replace the car with a new model if you have it stolen or written off in the first year. So who would benefit most?
If you used finance or a big personal loan then you might be well out of pocket in the standard insurance scenario, so GAP could really help.
If you know the car youâ€™re buying is going to suffer heavy depreciation then this could be viewed very much as an extra layer of insurance. Although what are you doing buying a car like that in the first place?
Those cars bought under long-term lease could also give you a headache if theyâ€™re nicked or wiped out, so GAP insurance could bring serious peace of mind.
You could get GAP insurance from the showroom when you buy the car, but there are plenty of people offering it. You should check for the five key sections: length of cover, excess, any exclusions, the claims process and cancellation process. If one looks remarkably cheaper than the rest, question why that is. For example, is there a very short claim period? Some claim periods can be as little as 30 days so do read the small print.
Be aware if you want to buy this insurance through your dealer theyâ€™re not allowed to do so on the day they sell you the car, so bear in mind the timeline. Theyâ€™ll also have to tell you by law that you can get the cover elsewhere.