Guaranteed Asset Protection (GAP) insurance can be a valuable add-on for both new and used cars, but whether you need it depends on your financial situation, loan terms, and how your car depreciates.

What is GAP Insurance?

GAP insurance covers the difference (or "gap") between the amount you owe on a car loan or lease and the car’s actual cash value (ACV) if it’s written off or stolen. Standard motor insurance only pays the ACV at the time of the loss, which can be less than what you owe to the finance company.

When Do You Need GAP Insurance?

You may need GAP insurance if:

• You have a small down payment (less than 20%) – Your loan balance may exceed the car's value for a while.
• You have a long-term loan (48+ months) – The longer the loan, the slower your equity builds.
• Your car depreciates quickly – Some cars lose value faster than others, making negative equity more likely.
• You’re leasing a vehicle – Most leases require GAP insurance to protect the lender.
• You rolled negative equity from a previous loan – If you owed more than your old car was worth, the gap may be even larger.

When You Might Skip GAP Insurance:

• You paid a large down payment (20% or more) – Your loan balance will likely be less than the car's value.
• You have a short-term loan (12-24 months) – Faster loan payoff reduces the risk of negative equity.
• Your car holds its value well – Some vehicles depreciate more slowly, making GAP less necessary.
• Your savings can cover the difference – If you can pay off a loan shortfall out-of-pocket, GAP may not be needed.

Where to Get GAP Insurance?

• Car Dealerships – Convenient but often the most expensive option.
• Online GAP Insurance Providers – Typically more affordable when added to your policy.
• Price comparison Websites – Allows you to make sure you get the best coverage for your needs.

GAP insurance is worth considering if you’re at risk of owing more than your car’s worth after an accident. It’s especially important for new cars with rapid depreciation and for borrowers with minimal down payments or long loan terms. However, if you have strong equity in your car, you may not need it.