Understanding GAP Insurance For Cars?

Guaranteed Asset Protection Insurance, also known as GAP car insurance, is a popular insurance option in the UK for people with brand-new cars, fairly new or used vehicles where the shortfall in what they would get back if the vehicle were written-off or stolen would be significant. This kind of cover provides financial insurance to car owners if an accident happens that results in their vehicle being scrapped or stolen and it can’t be recovered.

In the event of such an undesirable incident, GAP insurance for your car makes up any shortfall between the lost vehicle’s current worth and the price originally paid. It can also pay out any outstanding repayments if it has been purchased with finance.

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Related Reading: Click4Gap Ranked #1 On MoneySavingExpert For Gap Insurance

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Why do I need Gap Insurance if I have standard car insurance?

In UK law you must insure your car, but any such policy won’t cover the depreciation in value, so it won’t stop you from losing money if your car is stolen or written-off. In short, new cars depreciate quickly, and do so at an alarming rate over the first few years.

Figures from the AA state that within the first 3 years, a new vehicle will, on average, lose approximately 60% of its value. This means that in the event of a write-off or theft of vehicle and your car insurance company has to pay out, it will ONLY pay you the present day value of the vehicle. Obviously if the car is less than 3 years old this is a significant shortfall. And even if older than 3 years, depreciation can still be significant, so you still could be left out of pocket when your insurer pays out.

This problem is also a cause for concern for those that buy a car on finance. The amount your insurance company will pay you often will not cover the total loan repayments you still owe. Unfortunately, in the event your car is subject to total loss, you could have to pay for a vehicle you can no longer use or even have.

These are the precise and compelling reasons why people get GAP insurance. A GAP policy covers any difference between the sum your insurer pays out and the cost to replace the car, like-for-like without you having to cover the shortfall. It is also used to cover the final figure you may owe on an outstanding finance on the vehicle.

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Related Reading: When Do I Need Gap Insurance?

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Is GAP insurance essential?

There are some circumstances where car buyers might not absolutely need GAP insurance. While there are second-hand GAP policies on the market, older or less expensive cars depreciate much more slowly, making GAP cover less important. The shoftfall on value vs insurance payout becomes less the older and less valuable the car becomes. However, 2nd hand cars still depreciate in value and so many people still choose to protect their vehicles original purchase price with a GAP Insurance policy.

Understanding GAP Cover With Cars on Finance

GAP insurance is extremely beneficial for those with cars on finance, as they can help you avoid owing more than the value of the car you bought. This is an unfortunate scenario that occurs when a vehicle depreciates swiftly or when a finance deal involves a large amount of interest. For example, if you only made a modest down payment of around 15% to 20% on your finance agreement, or are making your car repayments slowly, this puts you at a big risk. Many finance agreements also include a large balloon payment, which must be paid when your agreement is over, which can also lead to this problem and a serious shortfall.

All such circumstances are no longer an issue with a good GAP car insurance policy. When buying a car on finance, you can have the peace of mind knowing that if it is damaged beyond repair or stolen, any outstanding repayments and final settlements are covered by your GAP insurance protection.

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Related Reading: A Comprehensive Guide To Gap Insurance

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Do You Need Gap Insurance?

If you purchase or lease a new or nearly-new vehicle (up to four years old), this is the period of time your car depreciates the fastest. During this time you should seriously consider Gap Insurance.

Choosing The Right Gap Insurance For Your Car

Whichever method you choose to pay, there is a GAP insurance policy that is right for your vehicle, personal circumstances and financial position. GAP insurance is available for new and used cars.

Combined Return to Invoice Gap Insurance

If you paid cash for your vehicle, or paid a sizeable deposit, or if you financed it, Combined RTI Gap cover will pay out the shortfall between the cost of your vehicle and the market value at the point of claim, which is the amount your motor insurer will cover. This is cover that will protect you no matter if you use your vehicle for private use or for business.

Lease/Contract Hire Gap Insurance

If you leased your vehicle or it is under a contract hire agreement, Lease/Contract Hire Gap Insurance will cover you for the shortfall on your lease agreement, after your motor insurer settlement. If, for any reason, you change your vehicle within the first 90 days from the start date, we will also arrange to transfer your cover to your new vehicle without hassle or charge.

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