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WHEN we buy a car, there is so much more to consider than the vehicle itself.

We have to think about whether we’re buying it outright or on finance, what customisation options to opt for and, of course, the insurance.

You’ll often be sold various guarantees and insurance packages, but one that is often misunderstood is GAP insurance. So, what exactly is GAP insurance and do you need it?

What is GAP insurance?

Guaranteed asset protection insurance effectively covers the difference between what you paid for your car and what your insurance company deems it is worth.

The reason it has to exist in the first place is simply that the automotive market is, by nature, a market where investments lose value so quickly. Indeed, the moment you drive off the forecourt in your brand new motor, it will have lost at least a third of its value.

If your car is stolen of write off then you are likely to be paid whatever the car is currently worth and that is more than likely to be less than what you paid for it.

This is particularly true of brand new cars. GAP insurance covers this gap, so is often sold alongside brand new cars and is less popular in the used car market.

Do I need it?

Nine times out of ten, your insurance should always be able to offer a replacement car of the same age and condition of your existing vehicle. If you would be more than happy with this then there is little reason to take out GAP insurance.

Also, if your car is less than a year old and your insurance  is fully comprehensive or your car is used, then GAP insurance might not be for you, as used cars don’t drop in value as harshly.

If, however, you like the idea of getting a brand new car in the event of yours being written off, or you have taken out a personal loan to buy a new car, then GAP insurance is certainly an option worth considering.

Market outlook

The GAP insurance market is expected to grow from $3.29 billion in 2019 to $6.50 billion by 2027, at an estimated CAGR of 14.6%. With such monumental growth expected, it’s obvious that GAP Insurance is an increasingly viable option for car owners. 

Indeed, as car values continue to fall faster, it would appear that GAP insurance will become a more standard option and now that you know what it’s all about, you will be able to at least hold your head up high the next time you’re car shopping and hit gets brought up.

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