Car Gap, or Motor Equity Insurance (MEI) is a special kind of insurance that covers the shortfall or "gap" between what you owe on a loan and the payout amount if your car is written off as a total loss, or stolen, during your insurance coverage period.
Let's say you owe $10,000 on your car loan. A huge truck slams into your parked car and completely writes it off. The truck drivers' insurer will pay $9,000 agreed value. Gap insurance will make sure you're not out of pocket by $1,000.
Car gap insurance will settle the loan, and you won't have to pay back a loan on a car that's written off.
How do I get it?
Firstly, you'll need to be subject to a loan contract. You'll also need to take out a comprehensive car insurance policy. It's recommended you shop around for the best policy.
What about extras?
Some car gap insurance policies also come with extras. For a little more, extras can cover your excess payments; costs of replacing your vehicle (if your comprehensive insurance doesn't cover it); delivery charges; registration; CTP; insurance premiums; stamp duty; and even pre-approved hire cars for up to 10 days.
Do you need GAP insurance?
If the down payment towards your car loan was less than 20%, you may owe more than what your car is worth. If your car is written off or stolen, GAP insurance cover can allow you to pay off the balance of your loan.
If your car is a total loss, the distance between the eventual payout and what you owe on a loan could be staggering. It's peace of mind for borrowers concerned their comprehensive insurance payout won't settle the loan. It significantly reduces and eliminates the risk of your own finances being used to pay off a car that you can no longer use.
In some cases, gap insurance potentially provides you with additional funds to purchase a new vehicle and protects your credit history from any negatives.
Usually, the premium covers you for the full term of the loan and can be included in the amount being lent out.
Remember, always speak to a financial professional to tailor a plan for you.