Guaranteed Asset Protection (GAP) Insurance Warning For Consumers

Every day, New Zealanders borrowing to buy cars are upsold optional insurance policies. MoneyHub’s research aims to warn consumers about buying policies that may cost more than they’re worth.

MoneyHub Senior Researcher Christopher Walsh said:

“As the name suggests, GAP insurance covers the ‘gap’ between how much your insurer pays you if your car is written off, and how much is owed to pay off the loan. For example, if your Honda is insured for $15,000, but you owe your car lender $17,000, the $2,000 shortfall would be covered by GAP insurance”.

“GAP insurance has its purpose, but we’re well aware that many car yards across New Zealand sell the product because it’s high margin. We take a view that there are many viable alternatives that are cheaper than a stand-alone GAP insurance policy”.

“For anyone looking to borrow money to buy a car, the first question is – how much is this car really worth? Our guide to car valuations outlines tools to value any car. This is a good starting point to get clarity on whether or not you're paying too much. Sadly, many people overpay for both a car and finance when they’re not properly comparing”.

“Secondly, agreed-value car insurance policies are another option to protect against loan obligations for total loss. In simple terms, if you owe $17,000 on the same Mazda and it’s insured for $17,000, you’re no worse off in a total write-off (less an excess amount) and avoid GAP insurance altogether”.

“Despite the array of insurers all over New Zealand selling GAP insurance policies, we believe that anyone who owes less than what the car is worth is arguably not suitable for GAP insurance. In such instances, there is equity in the car which makes GAP insurance unnecessary”.

“GAP insurance is usually wrapped up in the cost of car finance which makes it hard to understand the cost. Some customers are, arguably, unaware of what they're buying. When a car loan is $10,000 and add-on insurances are quoted as $2,000, the consumer usually pays interest and makes repayments on $12,000. The net effect of add-on insurances such as GAP is that it makes car finance more expensive. This is a bad deal for consumers from day one”.

“Our new guide to GAP insurance, exclusive on MoneyHub.co.nz, will continue to be updated as policies and players in the market change. We welcome transparent/online quotes and pricing, but right now that does not seem to be the case for many people considering this specific add-on insurance”.

More: GAP Insurance