Gap insurance is aimed to give car owners the peace of mind that should their cars be written off, the gap between the insurance pay-out and the amount of money that they initially paid for their vehicle is covered.
Gap insurance cover usually only applies to cars and other vehicles up to seven years old and with fewer than 80,000 miles on the clock. It is irrelevant how you paid, that is what kind of payment method was used, and where you purchased the vehicle from.
You have to be aged 18 or over and the named driver of the car on the car insurance policy to apply for cover.
Why is it necessary to get gap insurance?
A problem with cars is that they depreciate in value rapidly. This can come as a huge blow and hit the bank balance should the vehicle be written off in an accident.
Say you have paid £15,000 for a car which subsequently drops in value in three years' time to half that amount, to £7,500. Should someone then steal your car or it be written off in an accident, your insurance company is only going to pay out for the value of the car at the time, which would be £7,500.
Should you then want to purchase another car similar to the one you got three years ago, you are going to have to fork out several thousands of pounds out of your own pocket to do so.
Gap insurance can prove beneficial here because it provides protection against car depreciation by paying the difference between your car insurer's settlement and the present value of your car.
Therefore, you will receive £7,500 from your car insurer as well as the remaining £7,500 from your gap insurer which will then mean you can replace your care with one similar to the one you originally bought.