Do I Need Gap Insurance?

Gap insurance, or Gap cover, is an acronym for ‘Guaranteed Auto Protection’. It is a type of insurance needed for a short period of time (usually 36 or 48 months) while the value of a loan taken out to buy a car is so high, or while the early years of higher depreciation are so dramatic. With gap insurance you are covered for any shortfall in repaying or recouping the difference in value if the car is written-off or stolen. Your standard car insurance will not cover this.

By way of example, if you put no money down when financing or leasing a car, the amount that you borrowed may be more than the total cost of the car for several years. If the car is written-off in an accident or stolen, standard car insurance will only pay you the current value of the vehicle, so you will lose money paying back the original loan or lease. Gap insurance covers this “gap” between the depreciated value of the car and the amount owed on the loan. Gap insurance is also extremely valuable for those with a standard lease agreement, or have purchased a car outright. The depreciation on your vehicle will not be covered by your standard insurance if it is written-off or stolen. You will therefore be out of pocket.

Whether you need gap insurance for your car depends on the type of vehicle that you purchase or lease. But is gap insurance worth it? It probably is if you believe you may owe more money on a vehicle than your comprehensive insurance policy would pay out if you were to file a claim.

What is Gap Insurance?
If you paid £11,200 cash for your car and a year or so later it is declared a total loss, after your motor insurance pay-out you could have a shortfall of as much as £5,300. If you have Gap Insurance, this shortfall would be covered in total up to an amount of £50,000, subject to the policy terms, plus up to £1,500 for dealer-fitted accessories and £250 towards your motor insurance excess.

Do I need Gap Insurance if I purchase my car on Finance?
It is definitely worth considering purchasing Gap Insurance if you’ve bought a car on Finance such as with Personal Contract Purchase (PCP) or Hire Purchase (HP).

In this instance if your car is written-off or stolen and the value of the vehicle is less than that owed to your Finance company, it would require you to pay the outstanding balance out of your own pocket. In very stark terms you are therefore potentially paying your own money out for an incident that was not your fault or beyond your control.

IN SHORT !!! If you purchase a new or nearly-new vehicle (up to four years old), this is the period of time your car depreciates the fastest. During this time you should seriously consider Gap Insurance.

How long does a Gap Insurance Policy here cover me?
Unlike Car Insurance which is typically purchased then renewed every 12 months, Gap Insurance conveniently covers drivers from 1-5 years. In other words you can match the length of your Gap Insurance Policy with the length of your Finance arrangement or the time you expect to keep the vehicle, giving you peace of mind for the duration of your ownership.

What are your options for Gap Insurance?
There are a few different types of policy you can choose from when taking out your Gap Insurance cover with Click4Gap. These depend largely on how you intend to fund the purchase of your vehicle. So what car Gap Insurance is right for you?

Combined Return to Invoice Gap Insurance

If you paid cash for your vehicle, or paid a sizeable deposit, or if you financed it, Combined RTI Gap cover will pay out the shortfall between the cost of your vehicle and the market value at the point of claim, which is the amount your motor insurer will cover. This is cover that will protect you no matter if you use your vehicle for private use or for business.

Do I need Gap Insurance for a used car?
All cars depreciate in value, Gap Insurance protects the value of your car and while it is true that used cars depreciate at a slower rate than brand new cars, they still lose value. Consider these facts:

It is well known that a new car depreciates in value as soon as it leaves the forecourt and will typically lose 40% of its value during the first year.
A car driving 10,000 miles a year on average will lose around 60% of its value after three years.
If you purchase a used car up to four years old, this is it’s fastest depreciation period, so it makes sense to consider Gap Insurance.
If the car is older than three years and you do high mileage you still may want to think about Gap Insurance too.
Gap Insurance Is It Worth It?
Yes if it is a finance, lease or hire purchase.
Yes if it is less than 3 years old.
Possibly if it is high mileage / high expense.
So it’s most useful to consider:

How old is the used car?
How long do I plan on keeping it?
How much mileage do I plan to do?
Bear in mind that by the time the car is eight years old it has depreciated to a more stable level. All older cars come with repair risks but at the same time it’s good to know it wouldn’t drop value much further in the future. Again this depends on your mileage and how much you have cared for your vehicle.

Is Gap Insurance necessary?
Motor Insurance is mandatory, Gap Insurance isn’t, however it certainly safeguards owners of new cars, nearly-new car owners (up to four years old) and high mileage drivers from the unavoidable depreciation that happens.

If you have an older vehicle or you are a low mileage driver, most of the depreciation has already happened so Gap Insurance may not make sense. Nonetheless further depreciation may occur but it is likely it would be a lot slower than with new or nearly new vehicles.

If you have a finance agreement you may want to think about the depreciation of the car in case you end up owing the finance company a large sum of money or worse still more than you bought it for if it is written-off during the lease period.

Still unsure if you need Gap Insurance?
Want to discuss your personal situation and options. We are here to help. Call us Monday – Friday, 9am to 5pm on 0208 819 3424 or Email us anytime and we’ll get back to you during office hours .

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