How to pick a Gap Insurance Claim LimitWhen you get a quote for a Gap Insurance policy, you will see there are several factors to consider. The type of policy is clearly an important decision, as is the length of cover you require, however, there remains one choice that cannot be as obvious to consumers, the 'claim limit' on the policy.
This can take a little more thinking about, and it is crucial that you consider this carefully.
Gap Insurance Claim LimitProbably the first question to ask is what is the claim limit on a Gap Insurance policy and what role does it play?
Your Claim Limit is the maximum you can claim from the Gap Insurance policy to cover any claim you make.
So, if you take a Return to Invoice Policy for 4 years, the original car cost £14,000, you take a Claim Limit of £10,000 then let's look at an example of how it would work if you make a claim.
Three years into the Gap coverage, the vehicle is stolen and not recovered, and written off by your insurance company. Due to the car depreciation, let's say the market value of the vehicle is now £5,000, so this means that to get back to the initial purchase price of £14,000 you have a 'gap' of £9,000. The £10,000 claim limit is, therefore, enough to cover this, and pay you the £9,000 you require.
If the 'gap' had been £11,000 then your claim limit would simply have paid the maximum £10,000 you chose, leaving you £1,000 short of the original invoice price.
So as you can see, the claim limit is an important consideration when buying a Gap Insurance policy, but how do you know which is the right one to choose?
The biggest problem is that no one can say with any certainty, exactly how much any vehicle will depreciate over a certain period. Obviously, the longer you are looking for protection, the more your vehicle will drop in value.
The other aspect to consider is that you may well need a different claim limit depending on the type of gap insurance cover you opt for. For example, a Finance Gap policy may need a smaller claim limit because it only covers you to the outstanding finance settlement. A Vehicle Replacement Insurance policy covers you up to the replacement cost, and this can clearly be a much higher figure and require a higher claim limit to cover it. Let us illustrate this point for you:
You buy a brand new Ford Focus in 2016 for £18,000
You take a PCP finance agreement through Ford for the vehicle for 4 years.
In 2019 the Focus is stolen, its value is now £8,000, your finance settlement figure is £9,500, and the equivalent new focus is now £20,000.
As highlighted by Shortfall.co.uk, using figures obtained by WhatCar?, the average vehicle will lose approximately 50% with some vehicles losing up to 80% in just the first 3 years. The Renault Zoe astonishingly goes from £29,000 to £5,000 in just 3 years.
How would each of the types of Gap Insurance work for you?
Finance Gap Insurance - would pay the difference between the £8,000 the vehicle is worth, and the £9,500 you still owe on the vehicle finance settlement .
Finance Gap Insurance benefit £1,500, closest adequate claim limit £5,000
Return to Invoice - would pay the difference between the vehicle value of £8,000 and the original price you paid of £18,000. Therefore, you can clear your finance shortfall of £1,500 AND have £8,500 left over for a deposit for a new car.
Return to Invoice benefit £10,000, closest adequate claim limit £10,000.
Vehicle Replacement Insurance - would pay the difference between the vehicle value of £8,000 and the replacement cost of the equivalent Focus (£20,000). This would mean you could settle your finance shortfall of £1,500 AND have £10,500 left over for a deposit for a new car.
Vehicle Replacement Insurance benefit £12,000, closest adequate claim limit £15,000
So as you can see, you can take Gap Insurance for the same vehicle, over the same period of time, but the claim limit you require may be different depending on the type of cover you are looking for.
Which Gap Insurance Claim Limit do you pick?This is always your decision, and we do understand it is not always an obvious choice. However by considering the length of the cover, the circumstances of your purchase and which type of Gap Insurance you want, we hope our explanation above will hope you in making your mind up over the claim limit.
Whilst we would never suggest to you how to make this choice, we are always happy to discuss your particular circumstances with you, and point you your options. Please feel free to email or call us to discuss the Gap Insurance claim limit choices further.