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Unfortunately motor accidents and car thefts are risks that are very hard to prepare for -- in both cases cars can be completely written off. That's where GAP insurance comes in -- if you already have a comprehensive motor insurance policy, in the event of a total loss GAP insurance can protect you from a loss of money caused by vehicle value depreciation -- a great help considering how quickly cars drop in value these days.
Many people find GAP insurance confusing ... this is probably because most insurers don't explain it very well. Hopefully this page will help you find out if GAP cover is what you need.
What is GAP insurance?
Put very simply, if you have a relatively new car insured on a comprehensive policy and have an accident in which this car is written off, it's likely that your insurer will pay out only for what the vehicle was worth at the time of the accident and not the amount you paid for your vehicle. This will leave you out of pocket. Cars can depreciate quickly -- in fact, some cars can lose nearly 40 per cent of their purchase value within a year alone -- it's well worth considering GAP cover to protect your investment.
Are there different types of GAP cover?
The most standard form of GAP insurance is typically Return to Value GAP cover -- this means that the GAP insurer will pay the shortfall between what your car is worth at the time of the accident (what your standard car insurer will pay) and what it was worth when you took out the GAP policy.
Typically, most GAP brokers will allow people to take this policy out within seven years of purchasing a vehicle. However, many brokers will exclude certain vehicles, particularly those with a high mileage or very high value.
To give an example of how a Return to Value policy GAP policy would work, imagine you'd been driving your Ford Mondeo for two years and it now had a market value of £8,000. You could take out a GAP policy and cover the car for this value. Should you have an accident a year down the line, due to depreciation the car may only be worth £6,000 at this point. This would mean that the the insurer who insures your car on a comprehensive basis would pay out £6,000 and your GAP insurer would pay out £2,000 to make up the difference.
Of course, if you've just bought a brand new vehicle you may want to get some GAP insurance right away. In this case you may be looking for Return to Invoice GAP insurance. Essentially this cover is for vehicles that have recently been purchased (some brokers may allow a year before they exclude a vehicle others only 90 days), meaning that should you have an accident, your GAP insurer will make up the difference between how much your vehicle cost new and how much your comprehensive motor insurer pays out with depreciation taken into account.
For example, if you purchase a car for £18,000 and take out both Comprehensive and GAP cover, should you have an accident and your motor insurer pays out £17,000 after taking vehicle depreciation into account, your GAP insurer will pay out a £1,000 to reach the original invoice value. Typically this type of policy will last three or four years before expiring.
Vehicle Replacement GAP Insurance could be described as like for like vehicle cover. Essentially, should your vehicle be written off, your GAP insurer will guarantee to pay the additional costs so that your vehicle can be replaced with a brand new model. Most brokers will agree to this policy even if the price of your particular vehicle has increased. If your car has been discontinued for any reason then a replacement vehicle will usually be found. Like Return to Invoice cover, this policy is aimed at newly purchased cars and will only be vaild for three to four years.
Quotiva would like to stress that it is of upmost important that you discuss your specific insurance needs with a broker in detail to ensure that you buy the GAP insurance that is right for you. Different brokers will emphasis different policy features and they will also uphold different exclusions, so it's best to make sure you're in the know. It is also worth speaking to your broker if you have purchased your vehicle using finance as some brokers will offer Finance GAP Insurance -- this pays the difference between what you owe your finance provider and what your insurance company may pay out in the event that your car is written off for any reason. This type of cover could potentially save you from years of debt!