Should you ‘mind the GAP’ when it comes to beefing up your car insurance? GAP insurance is becoming increasingly popular as more of us choose to finance or lease brand new wheels. Its aim is to bridge the gap between the current value of a car and what you have actually agreed to buy it for, should you have an accident and your lovely new car is a write-off. But as an added expense, it’s not right for everyone and you may not even need it. To help you decide whether you would benefit from going for the GAP, we ask the question – GAP insurance: do you really need it?

do i need gap insurance

What is GAP Insurance?

GAP insurance aims to cover the difference (or gap) between what you owe on your car and what at any point, it is really worth. For insurance geeks, it is also an acronym and stands for ‘Guaranteed Asset Protection’.

If you don’t currently own your car outright – you have the vehicle on a lease contract or still have a sizeable balance to pay on a car loan, for example – then GAP insurance will protect both you and your lender or leaseholder should your ‘asset’ (aka, your car) be involved in an accident. More specifically, if your car is totaled or stolen, your comprehensive car insurance should pay out what the car was worth to replace (its current market value). However, if you actually still owe more to your lender or leaseholder than the car is currently worth, then GAP insurance will cover you for the financial difference. Without it, you could be left with a substantial bill that’s going to hurt if you don’t have the back-up savings to cover it.

How Does it Work?

With rising car prices, lengthening terms on car loans and the increasing popularity of vehicle leasing, GAP insurance is becoming more widespread in the domestic car market.

Car loans and leasing bring both convenience and risk as certain factors such as a long loan period, a smaller down payment or opting for an expensive model means you are more likely to owe more on your car than it is worth, especially in the first couple of years of having the vehicle. And rolling over any negative equity on the balance of a previous car can just add to that financial risk.  And this is where GAP insurance can come in.

Before looking at the pros and cons of opting for GAP insurance, let’s just take a quick look at how it actually works so you can decide whether it is right for you.  First up, GAP insurance is intended to be a supplementary package, to work in conjunction with your main car insurance policy and so should never be bought as a stand-alone in place of comprehensive car insurance. Your comprehensive insurance should step in if your car is written off in an accident or stolen. The kicker is that if your car is not recovered or cannot be repaired, then your insurance will only pay out the vehicle’s current market value and not any shortfall you could find yourself facing in terms of your loan or lease repayments.

Why? Well, in the first couple of years of a loan or lease contract, your monthly payments may well be less than the depreciation rate of your car. This means in the event of a theft or accident, you could well be hit with a bill for the difference between what is still owed on your loan or lease contract and the actual replacement value for the car. In short, you will be left without a car and still be paying for it!

The main things to take on board when considering GAP insurance are whether you are at risk of being left with a bill should your car be totaled and do have the finances to fix this problem yourself.

What are the Benefits?

GAP insurance is a good idea if you owe more on a car than it is worth, which is often the case with a loan or a lease. As a supplementary insurance policy, the immediate benefit of GAP insurance is peace of mind. We all know that brand new cars lose value the minute they are driven off the forecourt and if you buy a car on finance or via a lease deal, you need to make sure that this depreciation is covered from the get-go. Over time, this financial discrepancy should start to even out, but GAP insurance helps to take out the risk from the start.

And we all also know that accidents do happen, despite our best careful driving efforts. Should you be unfortunate enough to have your new loan/lease car written off or stolen, your loan or lease company is not liable for the difference and you will still need to repay what you owe, based on the value of the car at the time you took out the financial agreement.

Do I Really Need GAP Insurance?

Not everyone needs to buy GAP insurance. If you own your car outright or your outstanding car loan is equal to or less than the current market value of your vehicle then step away! Your existing car insurance should be sufficient to cover a total loss should you find yourself in such a situation (but please do ensure your car insurance is comprehensive enough – if in doubt, read the small print or speak to your insurance company).

However, if you fall into the ‘negative balance’ scenarios we have already outlined, then GAP insurance is a good option to look into.

Best Way to Get GAP Insurance

If you didn’t get GAP insurance at the time of buying your car, don’t worry you could still get coverage. But first off, check through the terms of your original loan or agreement to ensure it has not been included. If not, you could well get a better deal through your own car insurance company, which you can choose to renew each year. This way, after a couple of years you work out the numbers and the balance on your loan is now less than the market value of the car, you could look to cancel.

If you do go through your insurance company (or another insurance company) for a GAP insurance policy, you may find they will only add GAP if your existing policy already includes comprehensive and collision coverage. Again, read your insurance schedule and the small print to check you have everything you need in place. Adding GAP insurance doesn’t have to be expensive, typically around $40 added to your existing annual premium. And remember, just like your ordinary comprehensive car insurance, you will most likely still have to pay an excess if you claim so ask what this will be.

A stand-alone GAP insurance will be around $200 – $400+ per year depending on whether you go through your car dealer or an insurance company so do shop around to get the policy that is right for you, in terms of coverage. However, the cost of GAP insurance will vary depending on the value of your car and whether you’re buying or leasing.

car insurance

Things to be Aware of

If you think your situation means you would be better off opting for additional GAP insurance just be mindful of any exclusions or scenarios where it might not cover you for as much as you’d expect. Read the small print and ask your insurance broker the right questions to be sure it is worth the money. To help, here are just a few things to look out for:

  • GAP Insurance policies will have an excess when you claim so check the amount before you sign
  • It won’t cover any non-standard extras you have added to the car after you bought or leased it, for example, a new music system, sat nav or hands-free car set. You can, however, choose to add these items on to your insurance for an additional cost
  • If your main car insurance company offers you less than the market value of the car, and you accept, the GAP insurer won’t make up the difference
  • Your GAP insurance won’t pay out if your standard car insurance is not fully comprehensive
  • You won’t get the money unless your car is officially labelled a write off or unrecoverable
  • There could well be a delay in the pay out until your claim has been successfully processed. Be mindful, this could well leave you will period of time when you are without your car and you are still having to make your monthly payment.
  • Also check the warranty of your brand-new car to see if it would cover you in the first year.

In Summary:

GAP insurance can help protect you from a nightmare bill if your new or lease car is totaled or stolen, and its market value is revealed to be less than you still owe on your contract. But it is not right for everyone and you could be paying an extra premium for something that isn’t really beneficial.

You don’t need it if…

  • You have bought a used car that won’t be affected as much by depreciation as a new vehicle
  • You have paid cash for your car or have put down a substantial deposit
  • The outstanding amount on your car loan is less than the current market value of the car
  • Your existing comprehensive car insurance payout would be enough to fully cover the cost of the car

However, it could be useful if…

  • You want to buy a brand-new car and have a loan or lease deal over an extended period of time
  • You have put down a minimum deposit for the new vehicle
  • You have rolled over a loan balance from a previous car loan to your current vehicle loan arrangement
  • You know you still owe more than your car’s current market value.

Related Post: Best Car Buying Apps


  1. Gap insurance – do you need it? – Money Saving Expert
  2. How does gap insurance work? – Nationwide