When you buy a car you have to buy car insurance, it’s a legal requirement, but if you write off your car, this usually only covers the market value of your car at the time. What if you owe more on your car loan or need more to replace your car? This is where GAP insurance can help.

GAP insurance, or Gap Asset Protection Insurance, is basically insurance designed to fill the ‘gap’ between the market value of your car, as your car insurance typically covers it, and how much it was worth when you bought it.

Unfortunately, no matter how careful you try to be with your car, it is possible that it could be lost as a result of your involvement in an accident. Cancellation may not even involve you, as more than half a million cars are stolen each year and most of these are written off or totaled.

The problem is that the value of your car will usually depreciate at an alarming rate. In fact, cars can depreciate up to 77% in a 3-year period. Consequently, there is likely to be a significant difference between what you paid for your car and what it is currently worth.

You should check your auto insurance policy to see what your payment would be based on if you were to pay off your car.

If you’re based on current market value, as is often the case, you’ll have a shortfall to cover.

This shortfall will be a particular problem if you owe money on a car loan based on the original purchase price or if you want to replace your car with one of a similar category.

GAP insurance is becoming an increasingly popular policy to purchase to cover this shortfall and as such may well be worth purchasing.

You can easily get a GAP insurance quote online.

There are four policy types to choose from: Return to Bill, Return to Value, Financing, and GAP Replacement Insurance.

Return to value of GAP insurance For example, it can be purchased for cars from 3 months to 7 years. Pays the difference between the settlement amount of your auto insurance claim and the value of your car at the time you took out the policy.

Example of a Return to Value policy:

• Car value at time of insurance purchase: £16,000
• Car insurance settlement amount: £11,800
• Deficit paid by GAP insurance £4,200

To be clear, GAP insurance is purchased in addition to your auto insurance. It does not replace car insurance.

It’s not a legal requirement, but it can give you peace of mind knowing that in the event your car is stolen or written off in an accident, you know the difference between what you can claim on your auto insurance and the cost of paying off an outstanding loan or replace the because, you’re covered.

GAP insurance doesn’t just apply to cars, it also applies to other vehicles, including pickup trucks, motorcycles, and scooters, including plant vehicles, tractors, and trucks.