16.08.19

GAP Insurance – Do I need it?

GAP Insurance – Do I need it?

GAP Insurance: What you need to know

An often-heard car term when you buy a new car, but what is GAP insurance and do you need it? With the new September 2019 (69) registration plate out in the next couple of weeks, now is the perfect time to arrange your GAP insurance policy.

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 when you buy a brand new car, Guaranteed Asset Protection (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.

Depreciation means 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 insurance company would only give you 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 the vehicle was bought on finance.

If you own an electric vehicle, this depreciation factor is an even greater consideration for GAP insurance. We have seen a much greater depreciation rate for electric vehicles than standard petrol/diesel vehicles.
Our GAP insurance can even account for your leased battery where you have a separate battery lease agreement with the manufacturer.

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 protection could also be helpful.

When is it unnecessary?

Most fully comprehensive car insurance policies offer brand new car replacement during the first 12 months of ownership as long as you are the first registered owner – although this may include restrictions such as excluding theft or accidents where you are at fault. Be careful to read the terms and conditions to avoid paying for cover you don’t need.

However, it is worth noting that despite new for old cover being part of your policy in the first 12 months – you will not always receive a new vehicle.

  • You must be the first registered owner – it would not apply to any pre-registered cars you buy.

Check your terms and conditions of your finance agreement and your insurance before you decide to purchase or NOT to purchase an additional GAP insurance product.

Run your own business?

If your business runs a vehicle such as a van, light commercial vehicle or pickup truck, you may want to consider a Commercial GAP policy. Return to Invoice GAP would pay the difference between your comprehensive commercial vehicle insurance settlement and the original invoice price of your vehicle, whereas Vehicle Replacement GAP will 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 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 of your claim, although some policies cover higher excesses.
  • Non-standard extras added by the owner, such as speakers or a sat-nav, won’t be covered unless these are manufactured fitted options.
  • GAP insurance won’t pay out until your claim is successful and settled, so bear in mind that any outstanding finance payments must be managed on your own until then.

What if I buy a second hand car?

If you buy a second-hand car either privately or from a dealership, no matter how you pay for it, you will not be granted a new-for old cover by your motor insurer.

There are two options for second hand vehicles which will give you more peace of mind. This is either, an agreed-value GAP where the GAP insurer will pay out additionally to your motor insurer up to a maximum agreed value for your vehicle at the time you take out the GAP insurance policy.

The other is a Total-loss top up GAP where the GAP insurer pays out an additional 25% of what the motor insurer pays out in the event of your vehicle being written off.

Some examples:

The following examples are real-life from one of our GAP insurance providers.

Example 1 – Purchase Price Protection

Vehicle Vauxhall Grandland X
Date of Purchase 11th October 2016
Purchase Price £11,599
Date of Total Loss 20th May 2019
Total Loss Valuation £8,250
GAP Claim Payment £3,349

Example 2 – Finance GAP

Vehicle Volkswagen Crafter
Date of Purchase 15th October 2016
Purchase Price £21,000
Date of Total Loss 7th June 2018
Total Loss Valuation £14,050
Finance Outstanding £16,173.40
GAP Claim Payment £2,123.40

Example 3 – Total Loss Top Up

Vehicle BMW 320i
Date of Total Loss 5th December 2018
Total Loss Valuation £17,100
25% of Total Loss Valuation £4,275
GAP Claim Payment £4,275

Example 4 – Top Up Fleet GAP

Vehicle Vauxhall Vivaro
Date of Purchase 20th September 2016
Date of Total Loss 3rd July 2018
Total Loss Valuation £10,500
Finance Outstanding £9,518.19
25% of Total Loss Valuation £4,275
GAP Claim Payment
(pays the greater of the difference between the finance
outstanding and the total loss valuation or 25% of the
total loss valuation)
£4,275

GAP insurance is important for a range of vehicles, whatever the original cost and however they are purchased.

We can provide you with a wide range of options, ensuring that you exact needs are accounted for.

If you have bought or considering a new car, then call Fiveways today on 01952 812380 or email enquiries@fivewaysinsurance.co.uk to get a quote for your car insurance and GAP insurance.

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