If you’ve ever bought a brand-new car, the chances are that the dealership has tried to sell you GAP insurance. But what is GAP insurance, and do you need it? If you do, where should you purchase it from?
Here we’ll examine some of the different types of Gap insurance available, look at when drivers should consider buying Gap insurance, and other important information for you to consider.
What does GAP insurance stand for?
The ‘GAP’ stands for ‘Guaranteed Asset Protection’. There are several different types of policy but, largely, this type of insurance is designed to complement traditional comprehensive car insurance. In the event of an accident or theft leading to the car being written off, GAP insurance covers any shortfall between a car’s purchase value and the value of an insurance pay-out.
Many insurers compensate customers to the current value of their vehicle – as opposed to its value when the vehicle was bought. This can mean drivers finding themselves out of pocket if they have bought the car on finance or want to replace it with a car of the same original value.
Who should you buy GAP insurance from?
As we have mentioned, dealerships are where most drivers are sold GAP insurance. It often feels like one of those add-ons that dealerships use to make commission. But motorists do not have to buy from a dealership.
Dealerships also have to wait for two days after selling a vehicle before they can sell a customer GAP insurance, unless the customer waives the right to this cooling off period.
Shopping around and getting quotes from insurance companies is usually the cheaper option. A survey by What Car revealed that GAP insurance offered by four car dealerships was in every case significantly more expensive than an insurance provider. In one example the same policy cost £359 from a dealership and £141 from an insurance company.
Is GAP insurance a good idea?
It really depends on what your attitude to risk is. Only 26% of new car buyers buy GAP insurance, and just 1% of cars are ever written off. But brand-new cars lose up to 40% of their value in their first year, so should you be unlucky and need to replace your vehicle then GAP insurance will cover that sizable amount of money.
If you financed your car with a loan, and the loan to value ratio is high, then the shortfall you could be exposing yourself to in the event of a write-off will be significant.
Is GAP insurance mandatory?
GAP insurance is not compulsory, unlike car insurance. The chances of needing GAP insurance are very low. Many people may not even know that GAP insurance exists, and most drivers take the risk and don’t take out a policy.
You also shouldn’t need GAP insurance in the first year after you have bought a brand-new car, because car insurance policies will usually cover any losses incurred in the first 12 months of ownership.
What are the different types of GAP insurance?
Finance Gap Insurance
Finance Gap insurance is one of the most basic product offerings available. It helps the owner of a written-off vehicle to cover any remaining loans or outstanding payments from the date of purchase.
Return to Invoice Gap Insurance
This type of insurance is designed to bolster any insurance claim pay-outs, bringing the total amount of money reimbursed in line with the amount the customer paid for the vehicle (as written on the invoice).
Vehicle Replacement Gap Insurance
Like Return to invoice Gap insurance, but in reverse, this product helps motorists to bridge the gap between car insurance pay-outs and the cost of replacing the written-off vehicle with a new one. This product is also bundled with Finance Gap insurance on a regular basis.
Return to Value Gap Insurance
This product is very similar to return to invoice Gap insurance. However, rather than helping motorists get what they paid for their car, this type of insurance aims to make up the difference between the pay-out and the value of the vehicle when the insurance policy was first purchased. It is especially useful for owners of second hand or especially long-lived cars, but usually offered to cars which are fewer than seven years old.
Lease Gap Insurance
In cases where motorists leased their car rather than buying, Lease Gap insurance covers any fees and costs associated with the remainder of the contract or any premature cancellation of lending agreements.
Is GAP insurance worth it on a second-hand car?
It very much depends on how old the second-hand car is. The older the vehicle, the slower the rate of depreciation, and if you are coming to the end of a finance deal there will be less of a shortfall to cover. You get the most value for money from Gap Insurance on cars in their first few years on the road, because that is the period with the steepest falls in value.
Find salvaged vehicles and high-quality parts at ASM
If you have been involved in an accident or your car has been written off, you may be on the hunt for a replacement vehicle or spare parts. Here at ASM Auto Recycling, we can help. We ensure that only the best spare parts are kept at our sites, increasing your chances of getting a good deal on insurance on any repaired or auction-bought cars, vans or bikes. Our salvage auctions offer the chance to purchase vehicles at 50% savings on dealership models.
]]>