One type of insurance which often causes some confusion amongst motorists is GAP insurance, which is actually a type of insurance which is very intelligent in many cases so it is important to have a clear understanding of this type of cover and in what situation it would be useful.
What is GAP Insurance?
Essentially, GAP insurance is an optional policy which will provide financial protection in the result of a write off. In these situations, a comprehensive insurance provider would only pay out the current market value of a vehicle – due to depreciation, this could see you out pocket by thousands of pounds and struggle to afford a replacement vehicle.
Smart for New & Used Cars
With depreciation at its highest in the first year of ownership, it is obviously a smart type of cover for a new vehicle where you could take a huge financial hit in the result of a write-off. While it may not seem as important for a second-hand car, it is still intelligent to have coverage in place for a used vehicle whether it is nearly new or has many miles on the clock because it could still save you a large sum of money and accidents can happen.
Types of Cover for Used Cars
As with any type of insurance, there are various types of GAP insurance and a few which would be appropriate for the owner of a used car:
Vehicle Replacement Gap Insurance: Provides the replacement cost of another vehicle with the same mileage, spec and age as the car on the day that you purchased it.
Return to Invoice: Provides the difference between the invoice price and your used car’s valuation.
Finance/Contract Hire Gap Insurance: Pays the difference between the settlement and any outstanding finance on a finance agreement for a used vehicle.
Matt Eland, the Operations Director at Direct Gap provided his insight on Gap Insurance for used cars:
“Gap Insurance isn’t just useful for brand new cars, it provides great peace of mind on second-hand vehicles too. Brand new cars do usually lose a greater percentage of their value but any car continues to depreciate.
An already three-year-old vehicle could depreciate by around 30% over a further three years of ownership. On a £10,000 vehicle, this still amounts to a £3,000 shortfall in the event of a total loss.
Additionally, as more consumers choose to purchase vehicles on finance, Gap Insurance does not only cover the original purchase price but also insures the finance agreement. The rate that a vehicle depreciates is far quicker than any reduction in the finance agreement after monthly repayments.”
It is clear that GAP insurance is a smart type of cover for your vehicle whether it is brand new or used and could save you a huge amount of money if the vehicle is ever written off. As with most types of insurance, it should always be obtained from a specialist and you should always read the small print so that you know what is covered and what is not.
Some motorists claim that GAP insurance is unnecessary and especially if you own a used car, but this is not the case because accidents can occur no matter how good a driver you are and the financial implications of these can be severe and often more than what is expected due to depreciation.