Buying a car involves considerable investment and its market value depreciates at a rapid rate. Even in the first year of the purchase, the car value depreciates by 40% and by 3 years its value is reduced by 60% of the cost that you bought it for. In such a scenario, if your car is written off or stolen, what you get from insurance is only the market value and not the money you shelled out for it. Insurance companies have come up with a type of cover to replace the shortfall and are called GAP or guaranteed asset protection.

GAP is a cover that you should buy when you buy a new car to make up for the difference in money paid out by the insurer and what you paid for the car in case it is written off or stolen. Suppose, you paid $60,000 for a car and after a few days it meets with an accident. The insurer pays you only $ 36,000 as that is the market price. You incur a loss of $24,000. If you had availed a loan for buying this car it is a bigger loss as you have to pay interest on the loan to a car which you can’t use! Taking a GAP insurance along with the standard insurance will help you recover the losses. It is available for vehicles up to 10 years and can be availed for one to 3 years. It is most beneficial for cars which are up to 3 years old as it loses its most of its value in the initial years.

Types of Gap Insurance
Return to Value: The insurance paid out and the market value difference amount is covered in this type of insurance. If you have bought a car on a promotional offer and got discounts, then you get a considerable amount of money.
Return to Invoice: It covers the difference amount of the insurance payout and the amount paid for the purchase.
Vehicle Replacement: It is the difference amount of the insurance amount and the amount the car would cost currently to buy a new one. You will end up getting paid more than what you paid for the vehicle earlier as the cost of the vehicle would have risen considerably.
Finance Gap: If you have availed a vehicle loan, the insurance amount will not be enough to repay the debt, this cover will pay off the complete debt.

When Should You Take a GAP Insurance
GAP insurance is a worthy investment in the following situations:
New car: If you own a new car
Availing a Car Loan: If you have taken the financing option to buy a car. This cover can be used to pay off the debt so that you don’t have to continue payments.
Market Value Depreciation: If you think that the value of the car is going to reduce which would eventually mean a lesser insurance pay-out for the stolen or badly damaged car.
Car Lease: If you have a lease agreement, then a stolen or written-off car will leave you in debt. This cover can provide protection against it.

GAP Insurance, as the name indicates can help you cover the ‘Gap’ between the amount that you spent before and what you will get from the insurance company. It is advisable to consider all the parameters before you take any type of insurance.