GAP Insurance
If you have bought a car in recent times, then you will probably have come across GAP insurance as the vendor will have asked you if you want GAP insurance or not. If you are not familiar with buying and selling cars, then the chances are that you won't have heard of GAP insurance.
So what exactly is it? Well, let's say you buy a car that costs £20,000. Within a couple of weeks of buying it, you have a crash that writes the car off. At that point the car might have a value of £16,000 as perceived by the insurer, which leaves you with a shortfall of £4,000 if you want to get the equivalent car again. GAP insurance will cover that difference.
So in summary, this product (of which there are various different types) covers the difference between the payout you receive from your insurance and the initial price of your car - that's the gap.
As with any insurance product that is not a legal requirement, it is up to the individual to decide whether they want it or not. Obviously if you are very concerned about your new car depreciating in value rapidly, then this could be an attractive type of insurance to take out; or perhaps if you've taken out a loan to cover the vast majority of the cost then again this could be a form of protection to consider to ensure that you don't enter a negative equity situation.
There are many companies out there that offer GAP insurance, so if you are interested then be sure to shop around and get the best quote.
An interesting article with information about GAP insurance can be found on the website of fca.org.uk which states that GAP add-on insurance claims ratios from 2008 to 2012 were at an average of just 10%.
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