Do I Need Gap Insurance? And What Are My Options When Choosing Cover?

Do I Need Gap Insurance? And What Are My Options When Choosing Cover?

Buying a brand-new car is an exciting time but did you know that as soon as the front wheels drive off of the forecourt, your shiny, new investment is likely to depreciate by about 40% in its first year, according to Automobile Association (AA).

This decrease in value can lead to a significant loss if you were to have an accident, or your vehicle is stolen, as you will only receive the amount that your vehicle is worth at that moment in time rather than the original purchase price. This gap in value may leave you in a tough situation trying to recover the difference in cost.


What Can I Do?

GAP (Guaranteed Asset Protection) insurance was designed to solve this issue as it covers the difference in value and provides you with compensation equal to the value of the vehicle when it was purchased.

Case Study

If you were to drive your new vehicle 10,000 miles each year, for three years, it would lose up to 60% of its original value according to the AA. Therefore, if you originally purchased your car for £20,000 it would only be worth £8,000 after three years. This leaves you with a £12,000 deficit, that your motor policy will likely not cover in the event of an accident or theft. In addition, if you purchased the vehicles with finance, you may be required to continue making payments for a vehicle you no longer have. It is situations like these where GAP insurance becomes important.

Is GAP Insurance Right For Me?

Gap insurance helps ensure that you receive the difference in value due to depreciation and is most appropriate when you want to replace your vehicle with a brand-new one or have purchased it using finance. However, these are some situations where GAP insurance may not be necessary:

  • Your vehicle is less than 12 months old and you’re the first registered owner (your comprehensive motor policy may cover brand-new car replacement during the first 12 months).
  • Your finance agreement covers the difference between the purchase price and valuation price.
  • You can afford to pay the difference between the purchase price and valuation price, or what is left to pay on finance.

In addition, GAP insurance may only come into effect when:

  • Your motor policy is fully comprehensive.
  • Your vehicle has been declared a total write-off or unrecoverable.
  • You’ve made a successful claim, and everything is settled.

What Are The Three Main Types Of GAP Insurance?

  1. Finance GAP Insurance – If you borrowed money to purchase your vehicle, this would pay the finance company enough to cover your debt.
  2. Return To Invoice Insurance – This would pay the difference between your motor insurers settlement and the original purchase price, and can be used for both new and second hand cars.
  3. Brand New Car (Or Vehicle Replacement) GAP Insurance – this ensures you are able to get the purchase price plus a bit more, so that you are able to replace it with a new vehicle of the same model and specification.

What About GAP Insurance For Business Vehicles?

GAP insurance is also available to commercial vehicles as long as they meet the following requirements:

  • The vehicle weighs no more than 3.5 tonnes.
  • The vehicle is owned outright or on finance.
  • The vehicle is less than 10 years old at the start of the policy.
  • The vehicle would be delivered within the last 365 days.
  • The vehicle is not used for delivery or courier services, private hire, or other hire and reward.

GAP insurance can provide peace of mind that you’re financially covered when purchasing a new car. For more information on motor fleet or motor trade insurance, contact Insync Insurance today.