Gap Insurance

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Gap insurance is designed to provide cover for the ‘gap’ between what you owe under your car loan and what your car insurer pays out on your comprehensive car insurance if your car is a ‘write-off’.

It’s sometimes called Shortfall Insurance or Price Protection Insurance.

 

Example

You get a loan to buy a second hand car for $15,000. Once you include the interest, fees and charges on the loan, the total you have to repay on the loan is $22,000. You buy comprehensive car insurance on the car.

You’re involved in an accident and your car is written off. Your comprehensive car insurance will pay you the market value for the car, which might only be $12,000, but you are still left with $10,000 to repay off your loan. This $10,000 is the ‘gap’.

What's the problem?

  • A tricky sales process. A salesperson will sometimes add gap insurance to a car loan without explaining what the product is, or without you even knowing you are buying it.
  • Gap insurance is only designed to pay out if you already have comprehensive car insurance. They shouldn’t sell you gap insurance if you don’t already have comprehensive car insurance.
  • You can only claim gap insurance in limited circumstances. These should be clearly explained to you before being sold the insurance.
  • You might have too little cover, or you might be paying for cover you don’t need. Sometimes the maximum payment under a Gap Insurance policy does not cover the gap. Other times the insurance may cover a bigger gap than you have meaning you are paying for cover you don’t need.  You can check your policy documents for what your limit is.
  • It can be very expensive. Expect to pay around $1000, and you’ll probably be paying interest too.

What should you do?

Check your policy to see what it covers and if it’s what you thought it was.

Think back when you were sold the insurance. Did you agree to buy this insurance or was it just bundled in with other papers when you got a car loan? Did you feel pressured to buy it?  Were you given any incorrect information?  Was the process unfair in any other way?

If this insurance was added onto your loan without you knowing, the salesperson lied about the insurance or you think you were treated unfairly, use our website to help you ask for a refund.

Want more information?

The ASIC Money Smart website has really helpful information about gap insurance here.

If you want to read more about problems Australians have experienced with these products, have a look at Consumer Action Law Centre’s report, Junk Merchants – How Australians are being sold rubbish insurance and what we can do about it.

This fact sheet is for information purposes only and should not be relied upon as legal advice.  This was updated on February 3, 2016.