If you’ve recently bought a car, new or second hand (under eight years old), you may have been offered GAP insurance by your dealer. So, we thought you might appreciate a ‘GAP Insurance Explained’ blog post to help you decide if it’s right for you.
GAP Insurance Explained
Having your car stolen or written off in an accident is every motorist’s nightmare, especially if it should happen to a brand new vehicle. Often sold by the dealer when you buy a brand new car, Guaranteed Asset Protection or GAP insurance, covers the difference between the value of your car (which the insurer would usually pay out) and either the amount you paid for the car or the value of any outstanding payments on your vehicle finance contract.
Depreciation means that brand new cars lose their value very quickly. The AA reports that, on average, a brand new car decreases in value by 60% after three years. So, for example if your car was written off after three years, your car insurance would only cover you for its current value (40% of what you paid for it). This probably wouldn’t be enough to afford a similar replacement car and it is unlikely to be enough to repay the outstanding balance if you bought the vehicle on finance.
DO I NEED GAP INSURANCE?
• If you owe more than your car is worth, you risk being in negative equity. This is when GAP protection could be useful, for example if the down payment for your finance deal was small, if you’re paying a lot of interest or if you are paying the debt off over a longer period.
• Similarly, if you’ve signed up for a long-term contract hire arrangement, loss of the car might mean you end up owing the company more than your insurance provider will pay out.
• If you are concerned that you wouldn’t be able to afford to replace your car on a new-for-old basis, GAP insurance could also be helpful.
When might GAP insurance be unnecessary?
Most fully comprehensive car insurance policies offer a brand new car replacement during the first 12 months of ownership, as long as you’re the first registered owner. Alternatively, if you’ve bought it on a finance agreement, it may already cover you for the difference between the official value of the car and how much you paid. So be careful and read the terms and conditions to avoid paying for cover you don’t need.
Run your own business?
You can also have GAP policies on commercial vehicles, like vans, light commercial vehicles or pickup trucks. Depending on your method of payment and the terms of your contract, Return to Invoice GAP insurance would pay the difference between your comprehensive commercial vehicle insurance settlement and the original invoice price of your vehicle, whereas Vehicle Replacement GAP insurance would pay the difference between your lost motor and the cost of a replacement vehicle, usually matching the original at the time of purchase.
Watch out for exclusions
Whether for personal or business use…
• Remember you need to have fully comprehensive car insurance in place to claim on GAP insurance.
• GAP insurance won’t cover any amount deducted by your main car insurance company, for example reduced payouts due to unpaid premiums, salvage value or contributory negligence.
• Generally, it will only cover excesses up to £250, although separate covers can be purchased if required.
• Non-standard extras added by the owner, such as speakers or a sat-nav, may not be covered.
• GAP insurance only pays out when your claim is settled so bear in mind that any outstanding finance payments must be managed on your own until then.
So, is Gap insurance worth it and, if so, should you buy it from your dealer?
The question as to whether GAP insurance is worth it does really depend on your own individual circumstances. Hopefully the information in this blog post has given you an all-round understanding of GAP insurance so you can make an informed decision.
If you do decide that GAP insurance is right for you, it’s important to know that you don’t have to buy it from your dealer, we can help too. In fact, your dealer has to provide you with four days’ notice of the option to purchase GAP insurance, whereas we can provide immediate GAP cover for your vehicle.
Our specialist advisors can chat through the options with you to ensure that the product is right for your unique needs. We’ll complete the forms and set it up for you. It’s all done in a simple phone call. What’s more, our prices are likely to compare very favourably with that of your dealer.
And if you, like so many, are fed up of searching for car insurance online, let us quote on that too – we work with all the major providers and again, we can sort it for you in one simple phone call.
We’d love to help you with your GAP Insurance and your car insurance, so do get in touch on 01444 810 088 or email info@bennettchristmas.com.