Jones Motor Company: Used Cars For Sale Llandudno, North Wales, Gwynedd
Gap insurance covers the difference (or gap) between what the car is worth and what you owe on the car. It comes into play if your car is stolen or written off (damaged to the point that repair would cost more than the car is worth) during the term of your finance arrangement.
How gap insurance works
Let's say you buy a new car for £20,000. You put £500 down and your payments are £350 per month. Six months after buying your car, it is involved in an accident and written off. The insurance company determines that your six-month-old car is now worth only £16,500. They will pay you that amount (less your collision deductible if the accident is your fault). You've made six monthly payments plus your down payment, for a total of £2,600; you still owe £17,400 on the car. In a case like this, gap insurance would pay the £900 difference between what collision insurance covers (£16,500) and what you owe on the car (£17,400). If you did not have gap insurance, the extra £900 would come out of your pocket. (Note however, that if your insurance company determines that your deductible applies, the cost of the deductible is your responsibility -- gap insurance won't cover it.)