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GAP (Guaranteed Asset Protection Insurance) Insurance

GAP Insurance can be an expensive and unnecessary add-on to car finance. Our guide outlines everything you need to know to make an informed decision, including the alternatives.
Updated 31 October 2025
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Know This First: If you pay cash for a car, you'll never be offered GAP insurance. GAP insurance is designed to protect anyone taking out a car loan who has an accident, receives a payout from the insurer but finds that money isn't enough to pay off the car finance. However, it can be expensive and there are low-cost alternatives that avoid GAP policies altogether.

How does GAP Insurance work?

As the name suggests, GAP insurance covers the "gap" between how much your insurer pays you and how much is owed to pay off the loan. The best way to explain it is using an example: GAP insurance pays out when a car is written off an amount that's less than owed on the car. For instance, if your Toyota is insured for $10,000, but you owe your car lender $12,000, the $2,000 shortfall would be covered by GAP insurance.

To help explain GAP insurance, our guide covers:
Know This: Do I need GAP insurance if I have fully comprehensive car insurance?
  • Car insurance pays out a set amount - this may be less than what's owed on the car. For this reason, we believe the best place to start is raising the agreed value on the car insurance policy, which is likely to be cheaper than a GAP policy.
  • If this is not possible (which happens when the size of the loan well exceeds the value of the car), GAP policies can be considered as an option.

Warning - Add-on Insurances: Car Lenders may offer you Mechanical Breakdown Insurance (MBI) and/or Guaranteed Asset Protection Insurance (GAP). Our guides to both of these insurance options explain what you need to know. You may be encouraged to buy MBI and/or GAP insurance, but they are not compulsory with any car loan. Our view is that buying add-on insurance makes a car loan more expensive.
Christopher Walsh
MoneyHub Founder
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Why does GAP Insurance exist?

  • A car can depreciate faster than the reduction in the loan balance. This means the value of the car can, in many cases, be lower than what you owe.
  • This isn't an issue unless you have an accident, where the insurance payout may be significantly less than what the car lender is owed.
  • With any car write-off, you also need to factor in the excess cost, which is usually $400, $500 or as high as $1,800 in some situations (i.e. young drivers).
  • GAP Insurance pays off your car loan in full; your lender receives payment in full alongside the car insurance money. In summary, you no longer have a car loan.

What's excluded from GAP Insurance policies?

If your car insurer doesn't pay either the agreed value or market value, your GAP insurance policy won't be valid. Insurers usually deny car claims when the driver has broken the law (i.e. drunk driving or dangerous driving) or reckless behaviour (leaving the keys in the car, speeding or racing etc.). Furthermore, if your car insurance has expired, GAP policies won't cover you either. 

GAP doesn't cover car finance company debt that comprises late fees, penalty interests or default fees. These fees are usually only incurred if you get behind with payments.
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GAP Insurance – Pros, Cons and Alternatives

GAP Insurance policies solve a problem at a cost. This cost can be expensive. We outline what's important when looking at adding GAP insurance to your car loan:

Pros:
  • Safety net – If disaster strikes and your car is written off, being underinsured can be financially problematic. 
 
Cons:
  • Cost – GAP insurance is charged with your car loan repayments, which are an added ongoing expense that makes the cost of borrowing higher. 
  • Overpaying for car loans – If you're offered GAP insurance, it's reasonable to wonder if you're paying too much upfront for your car if insurance won't cover what your loan value is. 
  • Hard to compare - GAP insurance can only be taken out at the time of the vehicle sale and can only be purchased in conjunction with a credit contract. We believe how it's sold isn't transparent as it's difficult to get quotes and compare. 
  • Refinancing ends GAP cover - If you refinance your loan later on, the new loan will end any current GAP insurance cover as it only protects the existing loan. This means you'll pay for GAP cover again if you decide you need it. 
  • Maximum cover - some insurers will only pay up to a fixed amount, such as $7,000 or $10,000, which may not be enough if you're underinsured. To make sure you don't have such problems, adjusting your car insurance agreed value (see below) is a way to avoid maximum cover restrictions. 

GAP Insurance Alternatives

  1. Consider Increasing Car Insurance Cover – The most sensible starting point is to make sure your car insurance's agreed value will match the total loan costs. For example, if you take out a $30,000 car loan, but your insurer will only pay up to $25,000, you're likely paying too much for the car. 
  2. Consider Buying a Lower Priced Car – It's probable that the higher the price of the car, the bigger the gap between the car insurance agreed value and the car loan. The best approach is to know the true value of a car before agreeing to buy it - this way, the risk of having a value/loan gap is reduced.
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Who offers GAP Insurance?

GAP Insurance is sold by many car finance lenders, brokers and car yards (acting as a broker). Brands behind the policies include (but are not limited to):  
Important: None of the GAP insurers offers online quotes, making it difficult/impossible to compare options before contacting a car finance lender.

How long is GAP insurance valid for?
GAP insurance policies are usually valid for the life of the car loan, i.e. 2-5 years. If you refinance, you'll need to pay for a GAP insurance policy again if you wish to continue with the protection.
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Frequently Asked Questions

Is GAP Insurance suitable for my car loan?

It depends on the value of the car and the amount you've borrowed. That being said, we believe the alternative adequately insuring for an agreed value that will cover any outstanding loan balance is a cheaper alternative. We're not big fans of GAP Insurance and see the policies as a way for car lenders and brokers to make more money rather than providing a value-for-money risk product.

Should I buy GAP insurance from a car dealer?

Many car dealers don't like customers with pre-approved finance as it lowers their overall profit on selling a car. For this reason, we suggest comparing options before signing up for any car loan, GAP insurance policy and/or any other add-on. While there may be aggressive sales tactics, you should never rush a decision. Car finance is expensive, but it is competitive, so there are plenty of options.

Is GAP Insurance worth the cost?

It depends, but we think it's unlikely to be the best option to protect against the risk of a shortfall should your car be written off. That being said, if your car loan balance is already much higher than the value of the car, and you can't raise your car insurance's agreed value, a GAP policy should be considered, given the specific protection it offers.

Can I buy GAP insurance separately from my car loan?

No - GAP policies are sold at the same time as a car loan is approved. We see GAP insurance as an 'upsell' on typical car finance.

Do I pay GAP Insurance upfront or weekly?

You can do both. The policy is usually sold upfront, i.e. $500 for the life of the loan. This cost can be "rolled up" into the loan cost, meaning you'll pay off the GAP insurance cost over 3, 4, 5 years (or however long your car loan is). Be aware; when GAP insurance is rolled up into the loan, you'll pay interest on the balance as the money is lent to you.

Can I cancel GAP insurance?

Yes, but only during a "cooling off period". This is usually within five working days of agreeing to a policy. If you don't cancel within the cooling-off period, there are very few options for refunds later.
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Gap Insurance - Our View and Conclusion

We're well aware that many car yards across New Zealand sell GAP Insurance alongside a car loan as there are significant profits to be made from doing so. That being said, we don't believe GAP insurance is a product that has a lot of benefits, especially when sufficient car insurance protects you from the same risk. 

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.

Important: 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.
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