Gap Insurance: How to Get the Best Deal
Insurance (Photo credit: Christopher S. Penn)
If you’re planning to buy a new car using finance soon, or you live in an area where vehicle theft is an issue, then you may want to consider getting Gap insurance.
As soon as a car is driven off the forecourt, its value begins to depreciate. A car that was bought for, say, £20,000 might only be worth £12,000 – £13,000 three years later. Now, if that the car is written off, or stolen, your standard insurance policy is likely only going to cover you for the current retail price. So if you want to buy a similar car, you will have to make up the difference from your own funds. Gap insurance is designed to cover that eventuality.
It’s a particularly good idea when your car has been bought either with a personal loan or financing from a dealership such as T W White & Sons, or contract hire, as it can prevent you sliding into negative equity. Also bear in mind that with the cost of fuel ever increasing, large, powerful vehicles that consume a lot decrease in value much faster than smaller cars, and are also a lot more expensive to replace. With almost 120,000 cars being stolen every year and half-a-million written off, this form of insurance could be a real lifesaver.
Normally paid in monthly installments over a period of around 36 months, gap insurance usually applies to cars carrying less than 80,000 miles and that are up to seven years old.
But as with any form of insurance, it’s really important to do your research beforehand to ensure you’re getting the best deal. Here’s how.
Getting the right policy for you
Assuming you’re buying from a dealership, presumably the one where you bought the car, there are normally 3 forms of gap insurance you can apply for:
- Return to invoice
Makes up the difference between your insurance payout and either the original purchase price, or the outstanding settlement figure for your financing arrangement.
- Vehicle Replacement
Ensures you can buy the exact same car, even if it is now more expensive. Note: only applicable to new cars, not used.
- Finance Gap
Prevents slippage into negative equity by covering only the difference between the payout and the settlement figure in your agreement.
Factors to consider
The price of your car is obviously very important, but it’s not the be-all and end-all when it comes to gap insurance. There are many other factors you need to bear in mind.
Some providers of standard (not Gap) cover will have insurance policies that will buy you a replacement if the car is lost or written-off within the first 12 months after purchase, so you will need to look for Gap cover that has a deferred starting date.
Fully check with the Gap provider exactly how your car will be valued if you need to make a claim – is there an excess to be paid? Where will they be sourcing their information?
What is the maximum amount of cover you’re going to require? If your car is relatively inexpensive you don’t want to be paying premiums for a figure you won’t need.
While there are limits on the value of cars that Gap insurers will cover, most vehicles will fall below the £180,000 standard limit. But if your car is worth less than £30,000 then you may struggle to get cover, so will want to take other measures instead such as maximising the security measures you employ.
How long do you want your cover to last for? Around five years tends to be the maximum, but if you plan to sell your car within a few years, the policy probably won’t be transferable.
Other points to consider
You cannot renew your gap cover, though if the car is still less than seven years old you should be able to buy another policy.
If your car is involved in an accident you will now have two insurers to notify immediately, and you will want to pass on their details to each other so that they can arrange your pay out.
Category: Insurance
