Finance 
When you finance a vehicle or asset, the loan doesn't disappear if something goes wrong. Understanding what your insurance actually covers — and what it doesn't — is one of the most important things you can do before signing a finance contract.
What Comprehensive Insurance Covers
Lenders require comprehensive insurance as a condition of finance. It covers the cost of repairing or replacing the asset if it's damaged, stolen, or written off. What it pays out is the market value of the asset at the time of the claim.
That figure isn't the same as what you owe.
The Gap Problem
In the early years of a finance agreement, your asset depreciates faster than your loan balance reduces. A vehicle that was worth $40,000 when you bought it might be valued at $28,000 by your insurer two years later — but your loan balance might still be $33,000.
If the vehicle is written off or stolen, your comprehensive insurance pays out $28,000. You still owe the lender $33,000. That $5,000 difference is your problem, not the insurer's.
This gap can be significant, particularly on new vehicles (which depreciate steeply in the first two years), on longer loan terms (where the balance reduces more slowly), and on purchases made with a small or no deposit.
What GAP Insurance Does
GAP insurance — Guaranteed Asset Protection, also known as Low Equity Insurance — covers the difference between what your comprehensive insurer pays out and what you still owe the lender. In the example above, GAP insurance covers the $5,000 shortfall — you walk away with your loan cleared, not with an ongoing debt on an asset you no longer have.
GAP insurance is not expensive relative to the risk it covers, and it's available at the time your finance is arranged. Finance Worx can arrange GAP insurance as part of the settlement process.
What Credit Care Insurance Does
Credit Care Insurance — also referred to as Payment Protection Insurance — covers your loan repayments if you're unable to meet them due to circumstances outside your control.
Cover typically includes:
- Illness or injury — repayments are covered if you're unable to work due to a medical event
- Involuntary redundancy — cover if you lose your job through no fault of your own
- Terminal illness or permanent disablement — the loan is paid out in full
- Death — the loan is paid out in full, protecting your estate and family from inheriting the debt
If you have income protection or life insurance elsewhere that covers these scenarios, you may already be covered. If you don't — or if your existing cover has gaps — Credit Care Insurance is worth understanding before you finalise your finance.
Who Should Consider These Products
For a broader overview of things worth knowing before you commit to finance, see our post on what every borrower should know before applying.
GAP insurance is most relevant if you're buying new (steeper early depreciation), have a longer loan term, or have a small deposit. It becomes less critical on shorter-term loans or where a deposit means you're unlikely to owe more than the asset is worth.
Credit Care Insurance is most relevant if you're the primary income earner in your household, have limited sick leave or income protection in place, or have financial commitments that would be difficult to maintain if your income stopped.
Finance Worx can walk you through both products and help you understand whether they make sense for your situation. Both can be arranged as part of your personal vehicle finance or any other asset finance — get in touch or apply now.