Gap Insurance Explained

Just what is Gap insurance?

It’s Guaranteed Asset Protection insurance. There you go…clear, simple and easy eh?

No.

It’s a bit more complicated than that. I know, unusual for an insurance product but what can I say…

Although there are some variations, in the main, Gap insurance seeks to fill the shortfall that may occur between the value of your car and the amount you may receive from an insurance company if your car is written off.

“What shortfall” I hear you cry…

It’s a fair question. It is a common belief that when you take out car insurance the question about “How much is the vehicle worth” has a bearing on how much you are likely to be paid if your car is written off. Invariably, this is not the case and it is more likely that the value you give will have more influence on the premium charged than the amount that you will get after a major accident. (Do not, however, fabricate the value of your vehicle in order to get a lower premium, this is a very bad thing to do and may invalidate the insurance and even lead to proceedings for fraud!)

If your car is written off, in the vast majority of cases, you will be offered the “market value” of the vehicle. This can be a contentious figure, and if you find yourself in this position, you should never be shy in questioning the insurer as to how they reached their offer and to argue your point if you believe you have a fair one.

The shortfall typically arises, particularly with a new car, when a write off occurs relatively soon after buying the car. I think we all understand that the value of a car declines at its steepest as we drive it, shiny and new, off the forecourt. The “market value” can easily be several thousand pounds less than the price paid new. Gap insurance is designed to dovetail with your comprehensive insurance cover so that the overall payout you receive from both added together is more akin with what you believe will be the replacement cost of the vehicle.

What are the variations of Gap insurance?

Broadly speaking, the different variations of Gap insurance all aim to put you back into the financial position you were before your claim. However, because there are different ways of buying a car, variations have evolved to meet specific needs. Here are the main ones:

 

What are the different types of Gap insurance?

The Gap insurance market can be complex, with different providers offering their own unique products. Some of the most common policies are listed below.

“Return to invoice” Gap insurance

This is straightforward. The Gap insurance will pay an amount that will top up the main insurance payout to the amount that you bought your car for. Unsurprisingly, they will ask for a copy of the invoice.

“Return to value” Gap insurance

Similar to “Return to invoice” but instead of topping up to the amount you paid, “Return to value” will top up to the value of the car at the point of purchase. This can be of benefit if you have had the car a while, but moreso if you bought the car second hand.

“Finance” Gap insurance

This is probably the most basic and common forms of Gap insurance. It aims to help you clear any loans, finance or associated costs in the event of a claim.

“Lease” Gap insurance

If the car is leased and written off, this type of gap insurance is designed to help you pay the remainder of your contract and any early closure fees that may be applied for ending the arrangement early.

“Vehicle replacement” Gap insurance

Instead of paying an amount that will help you get to the figure you originally paid for your car, this is designed to bridge the gap between the main insurance payout and the cost of buying a new car. A lot of dealerships offer this type of product and include cover bor borrowing as well.

 

Should I take out Gap insurance?

As with all insurances, it is down to you to decide whether the cost of the cover and benefits offered are worth what you are being asked to pay for it. The chances are that you will be offered some type of Gap insurance when you buy your car. The best idea, as always, is to read the details of what you are being sold and then shop around to see what is available from the rest of the market.

Gap insurance is something to think about whilst not having an accident
Gap insurance is something to think about whilst not having an accident

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