Understanding Gap Insurance
All of us are accustomed to the concept of insuring our valuable assets against loss and damage: home & contents insurance, comprehensive motor vehicle insurance and so on.
However, not everyone is aware that there is the potential for a financial loss if their car is written off whilst it is under finance and a shortfall occurs between the insurance payout and amount still owing on the finance - despite the fact that the car is covered by comprehensive motor vehicle insurance.
Gap Insurance is protection against this potential loss: it helps protect you from a shortfall between your finance payout and insured value of your vehicle if it is written off.
How does a shortfall occur?
If your vehicle is written off while it is under finance, your financier will require you to pay out the remainder of the finance contract.
At the same time, your insurance company will compensate you for the loss of your vehicle, by paying you the current market value of the car (as determined by them), or an agreed value (if you chose an agreed value policy).
Unfortunately, the amount paid to you by the insurance company is often less than the amount required to pay out the finance, which creates a shortfall between the two.
This shortfall can occur for a number of reasons, but is often due to the fact that a car's market value declines faster than the finance on the car is paid back for the first few years of its life.
What does Gap Insurance do?
If your car is written off and a shortfall does occur, normally you would have to find the cash to cover the difference between the insured amount and the finance payout (including interest, fees, etc) - even if the write-off was not your fault.
Gap Insurance covers this shortfall*. By paying a once-off premium, Gap Insurance can provide you with peace of mind for the life of your car loan. You also have the option of paying the premium as a lump sum, or adding it to the finance on your car.
What levels of cover are available?
Stratton Finance arranges the issue of a Gap Insurance product called Autosure Protection.
There are several different Autosure Protection options available, each of which protects you against different levels of shortfall.
Autosure Protection even has cover options available to compensate you for the inconvenience suffered, by way of an additional cash payment that you use for any purpose that you want.
- Protects up to $20,000 of the shortfall between the comprehensive insurance payout and the balance owing on the finance*.
- Benefits Plus options of $5,000
Figure 1: Cover provided by Autosure Protection
An example of the cover provided
A vehicle is a total loss due to an accident, fire or theft.
$30,000 is still owing on the finance borrowed, yet the comprehensive motor vehicle insurance payout for the vehicles market or agreed value is only $20,000.
Autosure Protection can cover the $10,000 shortfall, plus (depending on which cover option was selected) up to $5,000 cash to compensate for the inconvenience suffered.
Want to know more?
If you'd like to find out more about Gap Insurance or get a quote, please complete an online enquiry or call us on 1300 STRATTON (1300 787 288).
* Benefit Limits and Exclusions Apply.
St Andrew's Insurance (Australia) Pty Ltd (St Andrew's) ABN 89 075 044 656 AFSL 239649 is the issuer of Autosure Protection. Autosure Protection is not a product of, nor guaranteed by Stratton Finance ABN 52 913 104 430. Any advice given is of a general nature only and is not based on any consideration of your financial situation or needs. To decide if Autosure Protection is right for you please read the Product Disclosure Statement which can be obtained from Stratton Finance. Stratton Finance is authorised by St Andrew's to provide general advice, to arrange Autosure Protection and may receive a commission from the issuers of up to 49.5% of the net premium on any product arranged by it. Autosure Protection is not compulsory and you are free to choose any provider for this type of insurance. All cover is subject to acceptance by the issuers.