When you buy a car you have to buy car insurance, it's a legal requirement, but you should write off your car, generally this only covers the market value of your car at that time. What happens if you owe more on your car loan or need more to replace your car? This is where GAP insurance can help.
GAP insurance, or Gap Asset Protection insurance, is basically an insurance designed to cover the 'gap' between your car's market value, as usually covered by your car insurance and how much it was worth when you bought it.
Unfortunately, however careful you try to be with your car it may well be written off as a result of you being involved in an accident. The write off may not even involve you as over half a million cars are stolen every year and most of these are written off or vandalized.
The problem is the value of your car will typically depreciate at an alarming rate. In fact cars can depreciate by up to 77% over a 3 year period. Consequently it's likely there will be a significant difference between what you paid for your car and what it's currently worth.
You need to check you car insurance policy to see what your payment would be based on should you write your car off.
If it is based on the current market value, as is usually the case, you will have a shortfall to cover.
This shortfall will be a particular issue if you owe money on a car loan based on the original purchase price or if you want to replace your car with one of similar standing.
GAP insurance is becoming an increasingly popular policy to buy to cover this shortfall and as such may well be worth you buying.
You can easily get a GAP insurance quote online .
There are four types of policy to choose from – Return to Invoice, Return to Value, Finance and Replacement GAP insurance.
Return to Value GAP insurance for example can be bought for cars aged from 3 months to 7 years old. It pays the difference between your car insurance claim settlement amount and the value of your car at the time you took out the policy.
Example of a Return to Value policy:
- Value of car at time insurance bought – £ 16,000
- Car insurance settlement amount – £ 11,800
- Shortfall paid by the GAP insurance £ 4,200
To be clear, GAP insurance is taken out in addition to your car insurance. It does not replace car insurance.
It is not a legal requirement but it can provide comfort that should your car be stolen or written off in an accident, you know that the difference between what you can claim on your car insurance and the cost of paying off an outstanding loan or replacing the car, is covered.
GAP insurance does not just apply to cars, it applies to other vehicles including vans, motorcycles and scooters too – even plant vehicles, tractors and trucks too.