GAP insurance, or, to give it its full title, Guaranteed Asset Protection, is an insurance policy which covers you for the difference between the value which your car insurance company will pay you if your car is stolen or written off after an accident, and the amount you paid for the vehicle.
If you have bought a brand-new car off the forecourt, you should be aware that its value will have dropped by the time you have driven it home. According to the AA, the value of your car could have been slashed by 40% after twelve month’s use, and a staggering 60% at the end of three years. Additionally, some models and makes drop in value at a faster rate than others.
If you are unfortunate enough to have your car stolen, or be involved in an accident which means it is not worth repairing, you could find yourself seriously out of pocket once your insurance company have paid out on your comprehensive policy.
New and used cars and a GAP insurance comparison
Although GAP insurance is normally taken out on a car direct from the manufacturer, it can be purchased to cover losses on a used vehicle.
As explained above, new cars can drop in value dramatically, but this is not necessarily the case with a second-hand car. With used cars, the big fall in value will already have occurred, and depreciation will slow. As a result, the gap between your insurers valuation and your purchase price will be much smaller. This means that you will have to consider whether or not you should take out GAP cover, as it can cost hundreds of pounds per year, and may not be worth purchasing.
We can help you make that decision.
If you are considering GAP insurance, it is important to understand and compare the different kinds of policies on offer.
The first policy to examine is particularly relevant if you have taken out finance to purchase your vehicle. This is known as a “back to invoice” policy. This will cover the shortfall between the amount your insurer pays you and what you paid for the vehicle, or what you still owe on your finance agreement. Remember, you will still have to pay your loan company what you borrowed even if the car is stolen or written off.
The second is a vehicle replacement policy covering the difference between your comprehensive policy pay out, and the cost of a new replacement car, or, in the case of a used car, what the price of your original invoice. If you have a contract hire with no option to buy, this kind of policy will cover the remainder of the lease cost once your insurer has paid you.
In the past, you would have had to compare the GAP insurance available from specialist brokers with what your car dealer was offering. Since September 2015, however, the Financial Conduct Authority has prohibited dealers from selling this kind of policy during the actual sale of the car. This means you have time to check what other policies are on offer before making a decision on what is right for you. There is a 48-hour cooling off period after you have been given the details of the policy on offer.
As always, the devil is in the detail, and typically GAP insurance will not cover the following:
After looking at what is on offer, and considering your own circumstances, you may decide a GAP policy is not for you.
This may be the case if your car is under one year old, as most insurance companies will provide a new car if it is written off or stolen, but check the fine print. If a like-for-like vehicle is acceptable, and you do not need a brand-new car replacement, a GAP policy is not necessary.
You might decide that it is not worth the extra cost if you own a second-hand car, but remember, if you have taken out a loan from a finance company it may still be suitable.
The price of GAP insurance can vary greatly, and this is because it is predominantly sold on brand-new cars which themselves vary in price. The more expensive the car, the more likely the depreciation will be high and rapid. Such vehicles may also be a target for car thieves. The vendors of this kind of policy have to take into consideration the sums they may be paying out in the case of a claim, and build that into their own pricing policy when they carry out a risk assessment.
On the other hand, if the GAP insurer deals with a specific underwriter, and offers them a significant amount of business, then they may be able to drive the costs down. It is vital, therefore, that you compare as many policies as possible before making a decision.
When comparing specialist brokers with car dealers, you will most likely find the broker cheaper. This is partly because a specialist company pays a lower rate of Insurance Premium Tax than a dealer. The former is charged 12%, whilst a dealer will have to stump up 20% on top of the cost of the policy.
Finally, you should also remember that a salesperson at a dealership may be driven by commission.
You will often hear that a brand new car loses value as soon as it leaves the garage forecourt. This depreciation can be, attributed to the VAT charged on a new vehicle. This value is lost straight away, as soon as you turn on the key. Vehicles will continue to lose their value as you cover more miles, the condition deteriorates and the manufacturers warranty runs out.
Gap Insurance is normally available within a short time frame of buying, or leasing, your car.
If your car has been written off as a result of the damage. If you buy your car with finance and your vehicle has since depreciated in value, the amount that your insurer will give to you may be less than the amount you owe the finance company. You are still going to have to pay back the loan, placing you in a negative equity situation. Gap Insurance pays the difference.
Bright Compare introduces customers to i-Wonder Aggregator Services Limited which is an Appointed Representative of ITC Compliance Limited which is authorised and regulated by the Financial Conduct Authority. Bright Compare’s relationship with i-Wonder Aggregator Services Limited is that of a business partnership, no ownership or control rights exists between us.