What Is GAP Insurance? And Why Do I Need It?

Guaranteed Asset Protection (GAP) insurance is an extra bit of insurance that covers the difference between what your finance company paid for the car and the amount your insurance company is willing to pay out.

A lot of finance providers insist that you take out GAP insurance if you’re a leasing a car as without it they can be left chasing you for payment.

If you don’t know what GAP insurance actually is, check out my GAP insurance guide for the basics. In this blog, I’m going to talk about GAP insurance and how it works specifically in the context of a car leasing.

Why you might need GAP insurance

GAP insurance is an extra type of coverage that you can add to your lease contract. It’s essential a way to protect against the possibility of there being a 'gap' in value when you need to claim on the policy. You’ll need to have a comprehensive insurance policy to be able to benefit from GAP insurance.

So, how does it work and why might you actually want it?

Well, it’s all tied up in the fact that with a lease you aren’t actually paying off the full value of the car each month. You’re just paying off how much money it loses in value in each month. This is a pretty complicated but it’s an important distinction to make because it shows you why GAP insurance can be very useful.

Say I get a new lease car, have it for a month and write it off in an accident. With just a conventional insurance policy, I would get only the value of what my car was worth at the time of the accident and not when I first bought it. The finance company obviously wants the full amount back hence the 'gap'.

GAP insurance fills the gap between insurance payout and the value of the asset, ensuring that you can claim what it was worth at the time of the accident.

Types of GAP insurance

If GAP insurance isn’t complicated enough, there are also lots of different types of this particular type of insurance knocking around. Here are the main types you can expect to come across:

  1. Finance GAP insurance
  2. Return to Value GAP insurance
  3. Vehicle Replacement GAP insurance
  4. Return to Invoice GAP insurance