1. What is Gap Insurance?

Gap insurance covers the difference between what you owe on your car loan and the car's actual cash value if it's totaled or stolen. It's particularly important for new cars that depreciate quickly.

2. How Gap Insurance Works in Australia

The calculator uses the standard Australian gap insurance formula:

Where:

• \( Vehicle\ Value \) — Current market value of the vehicle in Australian dollars
• \( Aus\ Factor \) — Insurance factor based on vehicle type and policy (typically 0.02 to 0.05)

Explanation: The Aus Factor varies by insurer and vehicle type, with higher factors for vehicles that depreciate faster.

3. Importance of Gap Insurance

Details: In Australia, gap insurance is crucial because new cars can lose up to 20% of their value in the first year. Standard comprehensive insurance only covers the current market value, not what you owe.

4. Using the Calculator

Tips: Enter your vehicle's current market value in AUD and the Aus Factor provided by your insurer (default is 0.03 or 3%). All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Is gap insurance mandatory in Australia?
A: No, it's optional but highly recommended for new cars or those with financing.

Q2: What's a typical Aus Factor?
A: Most Australian insurers use factors between 0.02 and 0.05 (2%-5% of vehicle value).

Q3: When is gap insurance most valuable?
A: During the first 2-3 years of ownership when depreciation is highest, or if you have a long loan term.

Q4: Does gap insurance cover the full loan amount?
A: It covers the difference between insurance payout and loan balance, up to policy limits.

Q5: Can I get gap insurance for used cars?
A: Some Australian insurers offer it for late-model used cars, typically up to 7 years old.