Gap is Guaranteed Asset Protection insurance. It’s an optional, add-on car insurance coverage that can help certain drivers cover the “gap” between the amount they owe on their car and the car’s actual cash value in the event of an accident.
Like for instance in the event your car is stolen or written off (total loss), GAP insurance covers the difference between the current value of the car (the amount your car insurer will usually pay out) and the amount you paid for the car in the first place, or any outstanding payments. But even if your car insurance is fully comprehensive, you can still lose money if your brand new car is written off (total loss).
As with Gap you risk, because you owe more than the car is worth if for example the kind of car you bought loses value quickly. You wouldn’t be able to afford to replace your car because of your brand new car depreciating in value, you wouldn’t be able to afford to replace it on a new-for-old basis.
This is because depreciation means brand new cars lose their value very fast. For example, if your brand new car cost R12 000 and it was stolen or written off three years later, you only get its current value, R4 800, from your insurance company. And this isn’t enough to buy an equivalent brand new car and unlikely to be enough to repay what you owe on your finance deal.
GAP insurance is a financial product often sold when you buy a brand new car. You may be required to purchase gap insurance if you are leasing a vehicle. And gap insurance can prove beneficial in the event of a total loss of your car. GAP insurance is not typically designed to cover older or relatively inexpensive vehicles. This is because their rate of depreciation is relatively low.
