Guaranteed Asset Protection insurance – or gap insurance – is a protection you buy for your vehicle if it is under finance or through a loan. Gap insurance covers you for any shortfall of financial loss you may incur if your car becomes written-off from a car accident, damage or theft. There can be many reasons why the shortfall occurs but the most common reason is because most cars depreciate in value quicker than the amount owing on the loan.
While your car insurance may cover you for the market value, you may still have a higher outstanding balance on the loan. The difference between the outstanding balance on the loan and the cover you receive from your car insurance is called the shortfall and can be very costly. There are different ways to purchase gap insurance either through the car dealer at the time of purchase or online. Always check the product disclosure statements before signing any contract.