GAP insurance is designed to protect you financially should your vehicle be written off and your insurance company undervalues the value of your vehicle.
For instance, if your car is written-off in an accident, an insurance company will pay a cash sum based on the current market value of the car. This will undoubtedly be less than you paid for the vehicle or , if you paid for the vehicle with a finance scheme, you will be expected to pay in full to clear your outstanding debt. GAP insurance can make up the difference.
Why Buy GAP Insurance?
Because most cars depreciate in value, the return you receive from your insurance cover will decline over time. In the event of total loss of your vehicle, the insurance settlement may not be enough to purchase an equivalent replacement or pay off any outstanding finance you owe on the vehicle.
If you have any outstanding finance that your insurance pay out does not meet, GAP insurance could allow you to clear this amount and meet the difference. Financial Gap schemes provide this peace of mind. If you find yourself without GAP insurance in these circumstances, you could be left in debt and end up having to find the full finance settlement figure in one lump sum
There is a common misconception that GAP insurance is most applicable to finance models, but even if you have settled the payments on your car GAP insurance can cover loss of value. Particularly important for new vehicles, when the value drops most rapidly, GAP insurance can protect you against depreciation. Otherwise you may be left with the insurer’s market value of your vehicle, and your replacement will be of a lower value than the car you originally purchased.
Different GAP Insurance Options
As well as Finance Gap, there are three main types of GAP insurance that will protect the value of your car:
Return to Invoice GAP Insurance (RTI) covers the difference between the insurance payment and your original invoice value. Some GAP products also cover a proportion of dealer fitted accessories in calculations.
Return to Value (RTV) covers the difference between the insurance payment and the market value of the car at the time of purchasing the GAP insurance policy. This is designed for those starting a policy a short while after purchasing the vehicle.
Vehicle Replacement GAP Insurance (VRI) covers the difference between the insurance payment and the value of purchasing the same model replacement. This is particularly effective as it could mean receiving a new car even if the value of the model has increased, but it is usually only available to cover newer vehicles.
With all these policies, one point is key: your insurer’s vehicle replacement policies are based on the market value at the time the vehicle is written off, whilst the GAP insurance is based on the value of your vehicle to you. Regular insurance may provide an seemingly arbitrary payout; gap insurance provides that payout may maintain your vehicle standards.
The Chances of Making a Claim
You may consider the chances of writing-off your car to be low. However, you must consider the cost of cover against the amount of value you will lose if it happens. The inconvenience it will cause if losing your car puts you in debt or forces you to downgrade may make that percentage seem like a higher risk, and gap insurance can, above all, provide peace of mind against these factors.