*A guide to gap insurance in collaboration with Protect Your Family.
Car Insurance isn’t a fun, exciting product, but it’s one that bears talking about. Sure, there’s the car insurance we legally have to buy in order to drive our cars, but there are also loads of different types of car insurance cover that aren’t mandatory which you can use alongside your basic car insurance, like GAP insurance.
GAP insurance, or Guaranteed Asset Protection, is one of the less well-known insurance products on the market, even though it’s something you’d imagine would be in high demand. It’s there to bridge the gap (bad pun intended) between the amount you paid for your car and the amount your car insurance provider will pay out if your car is stolen or written off. So here is a guide to GAP insurance.
What is GAP Insurance?
It’s disheartening, but it’s a fact of life that if you buy a brand new car, its value drops by a third as soon as you drive it onto the road, and it’s worth will fall by 40% in the first year, resulting in up to a 60% depreciation over three years on average. This means that if you were to lose your car, either due to an accident or theft, you’d also lose a pretty hefty chunk of money, as your car insurance provider will only pay you the amount they value the car to be on the date of your claim.
Say you bought a brand new family car, something dependable to take you guys on adventures for years to come. You pay out the princely sum of £35,500 or more. Three years later and your car is almost a member of the family, but you get into an accident and the car is written off. Now you’ve got no car, but never fear – your car insurance provider will pay out for it!
Except they won’t, not entirely. They’ll only pay you the value that your car has depreciated to. This is where Gap insurance comes in. Buying a car is a big investment, and whether you’re buying outright or entering a finance agreement, it’s a lot of money. Gap insurance helps you protect that investment by working alongside your mandatory car insurance to top up the difference between the price you paid and the value your insurance provider gives your car.
Do I need Gap Insurance?
You might need Gap insurance if you leased or financed your car, or you took out a loan to buy your car that wouldn’t be covered by insurance payout. You might also need Gap insurance if you want to protect your investment and don’t want the depreciation of your car to affect you, or if you’ll want a brand new car if yours is written off or stolen, rather than something of the same model year and condition as the one you lost.
Whilst Gap insurance is a handy thing to have if your situation is right for it, it might not be a necessary purchase for you and might leave you with too much cover and not enough money.
For instance, if your car is less than a year old and you have fully comprehensive insurance, or you have an old used car, Gap insurance would be too much cover for you. If you’re not worried about depreciation or you’d be happy with a replacement car that isn’t brand spanking new, which you could buy with the payout from your mandatory car insurance provider, then it probably would just be extra money you had to wave goodbye to.
Types of Gap Insurance
There are different purchase options for Gap insurance, but the principle of each of them is the same – your Gap cover will ‘top up’ what your insurance provider pays out in the event of the loss of your vehicle. The differences between each type of Gap insurance exist only so every situation can be covered, whether you bought a brand new or a used car, and whether you paid outright, or set it against a finance scheme.
Finance/Lease Gap and Negative Equity Gap Insurance is specifically for when you’ve taken out a lease, finance agreement or PCP in order to purchase your car. It’ll help you keep your credit squeaky clean and make sure you can completely pay off your finance agreement. However, it’s important to note that Finance Gap insurance usually won’t cover negative equity.
Negative Equity is when the agreed upon finance settlement is higher than the actual value of the car. If you part exchanged a car against a new model prior to fully paying it off and transferred the debt to the new car, this would create negative equity which wouldn’t be covered by Finance Gap insurance. Negative Equity Gap insurance works similarly to Finance Gap insurance, except it will cover your negative equity.
Return to Invoice and Return to Value Gap Insurance are as simple as they sound: your Return to Invoice Gap insurance will top up your claim’s payout from your car insurance provider to match the amount you paid for the car, and your Return to Value Gap Insurance will provide you with the value of the car the day you bought the insurance rather than the invoice price for the day you bought it. This could be useful for you if you had bought a used car, or if you’ve had the car for a while.
Vehicle Replacement Gap Insurance is for those of you who are really attached to your make and model of car, as it bridges distance between your insurance payout and the cost of replacing your lost vehicle with a brand spanking new one.
Did you know about Gap insurance before reading this? If you want more information, visit a comparison site like Protect Your Family to find out how protection products like this can help you.
Go forth and mind the gap!
If you found this guide to GAP insurance useful, you may also like my car section where you will find lots more car related tips.
Thanks for stopping by today, I hope you’ve enjoyed this post.