Gap Insurance covers you for the difference between your insurer settlement and the value of your car, but do you need it?
It is a sad fact that as soon as you purchase your new car and drive away, it begins to decrease in value.
In fact, the reality of car depreciation rates are quite shocking. Lease Car estimate that typically, a new car will lose 50-60% of its market value after only three years of ownership (assuming that it's travelling at the average of 10,000 miles per year).
So, what happens if your car is stolen or written off, and how can you ensure that you will get your money back? Official figures show that 845,000 vehicle-related thefts were recorded in England and Wales from July 2016 to June 2017. This is where Gap Insurance – or Guaranteed Asset Protection Insurance, to give it its full name - Insurance comes in.
What is Gap Insurance?
GAP, or Guaranteed Asset Protection Insurance, saves you from losing money if your car gets stolen or written off. In the event that your vehicle is considered a ‘total loss’, your insurer will ordinarily only cover the current value of your car, meaning that you may lose out if your vehicle has depreciated in value.
However, there are a number of policies that you can purchase to avoid feeling the pinch in your pocket.
Who should use Gap Insurance?
Gap Insurance is useful for every car owner, however it is especially recommended if:
- You own a car which depreciates in value very quickly
- You have bought your car on finance with a high rate of interest
- You plan on paying back your car over a long period of time
Where can I buy Gap Insurance?
Gap Insurance can be purchased from your car dealer, however, often this is more expensive. It is recommended that you buy it separately once you have purchased your vehicle. Admiral doesn’t currently offer Gap Insurance, but you can shop around to find the right cover for your needs with Confused.com.
Different types of Gap insurance
This policy pays out enough to cover the cost of a like-for-like replacement vehicle in the event that your car is stolen or written off. The difference between the insurance pay-out and the cost of a new vehicle will be calculated. This vehicle must be the exact same model, make and specification as your car.
Who can buy this? This policy is designed for new cars valued up to £125,000, under 3 months old and with less than 1,000 miles on the clock.
Return to invoice
This will cover the difference between your insurance pay-out and the original invoice price that you paid for your car in the event that it is written off or stolen.
Who can buy this? This is designed for new or old cars valued up to £125,000, under 10 years old and with less than 120,000 miles on the clock.
Return to value
This is similar to Return to Invoice; however, this ensures that you receive the difference between your insurance pay-out and the value of your car when you originally took out cover.
Who can buy this? Cars valued up to £125,000, owned for less than 3 months bought either from a dealership or privately. The car must be under 10 years old and under 120,000 miles. This cover is recommended for those who bought their car second-hand, or who have had their car for a longer period of time.
Who regulates Gap Insurance?
The Financial Conduct Authority regulate the use of Gap Insurance in the automotive industry. If you have any problems, complaints or queries, you should contact the Financial Ombudsmen Service.
Do I need to buy Gap Insurance?
Before you take out Gap insurance, there are a few things you should consider.
Can you afford the premium?
It’s all well and good covering yourself in the event of a write-off or theft, but consider whether you can afford to pay out for it. Price your car repayments – if you have finance- and insurance first, and then consider it. If you have car finance left to settle, Gap Insurance might be the right investment. On the other hand, if you don’t mind receiving the equivalent of your car when it’s written off then you could skip Gap Insurance entirely.
Check what’s covered Make sure you’re aware of what’s covered if you do opt for cover. Ask how the insurer calculates the value of your car, look at the exclusions and be aware of any terms that may mean the cover isn’t what you expect.
Can the policy be transferred?
In the event you sell your car, can you take the policy with you and apply it to your next vehicle.
Alternatively, can you cancel?
What to do if your car has been written off or stolen If you’ve suffered a write-off or had your car stolen, contact your insurer and Gap insurer as soon as possible. Your Gap insurer will then work with your other provider to assess the value of the car at the time of loss.