What are the benefits of Gap Insurance
At GapInsurance123, we are asked many questions by customers, mainly about features and benefits of Gap Insurance. These queries may be specific to the customers new vehicle, or in general terms of the policy coverage. What are the benefits of Gap Insurance, and why may you consider it?
As part of Aequitas Automotive Ltd, we are recognised as one of the leading specialists in Gap Insurance in the UK. As such we take a keen interest in the market, and also the opinions of the general public on the subject. In our humble opinion, Gap Insurance suffers from a lack of understanding by vehicle owners, and there can be a clear misconception of gap cover in general. Some of this is born out of the fact that Gap Insurance has changed over the years, and people may have a knowledge of how Gap Insurance used to work, not necessarily how it works today.
Before we get too in depth, let us consider the general reason why people consider Gap Insurance.
Why buy Gap Insurance?The basis for Gap Insurance is drawn from one simple fact - your vehicle is not very likely to have the same value in the future as it does today.
Ok, you may find some vintage car in the past that has a higher value today than when it was new, but in general terms, most vehicles will suffer from depreciation. If the car, van, motorbike or motorhome is stolen, or in an accident, and deemed a total loss by your motor insurer then you will be paid a 'market value' settlement for the loss. This means that you will only get the value of the vehicle at the time of the loss, not what you originally paid (there are some limited exceptions which we will discuss later).
The 'market value' settlement could be thousands of pounds short of the original purchase price leaving you with a dilemma. You can use the money you receive to buy an older vehicle than you originally purchased, or you have to fund yourself the purchase of a newer replacement. You may also have the outstanding finance to settle on your old vehicle that could reduce your insurance settlement still further.
The main benefit of Gap Insurance is that you could protect from the insurers market value settlement to the finance settlement (if you owe more on the finance than your vehicle is worth), the original purchase price or even the replacement cost of an equivalent model.
It really is that simple, however, there can be some confusion on the internet over exactly why Gap Insurance should be bought. Let's look at a few points raised elsewhere;
You don't need Gap Insurance if you paid cash for the vehicle - well you can still protect the original invoice price, or the replacement cost of the vehicle if you paid cash. It is only Finance Gap that would not be appropriate to consider.
You do not need Gap Insurance on new cars as your insurer will replace your vehicle in the first 12 months - there is some merit in this comment, as some (please note not ALL) motor insurers will look to replace your vehicle within the first year. However, there are two very important points to consider:
- What happens after 12 months and your 'replacement cover' has expired? Gap Insurance styles such as Return to Invoice and Vehicle Replacement Insurance must be purchased with 180 days (usually) from your vehicle purchase. If you try to buy it after 12 months, then we are not aware of an insurer in the UK who will offer it.
- What happens if your 'replacement' vehicle is not available? If this is the case some insurers will simply allow you to order a new one and wait. However, some may simply pay you the 'market value' of the vehicle instead, and you could lose your 'replacement' cover entirely.
Vehicle Replacement Insurance is not necessary as it only covers the same as your motor insurance policy - this has cropped up a few times and shows how poorly this product is understood, and can be seen time after time on internet forums. A motor insurance policy will protect the market replacement cost of the vehicle at the time it is written off. The VRI Gap Insurance policy will protect back to the market replacement cost of the vehicle at the time you bought the policy.
Let us explain the difference -
You buy a 1-year-old Vauxhall Astra 1.6 petrol of a certain specification and mileage. The vehicle costs you an invoice price of £12,000.
Two years later the vehicle is stolen, and now as a three-year-old vehicle, your motor insurer values it at £5,000.
Here is the important point, an equivalent model Astra (1-year-old, same mileage, and specification as the original vehicle you purchased) is now £13,000. Your Vehicle Replacement policy will cover between the old vehicle market value (£5,000) and the cost of replacing with the 1 year old equivalent (£13,000).
This means that the VRI Gap Insurance can return you to the cost of a vehicle of the same standard that you originally purchased.
You do not need Gap Insurance because you would never have to claim on it - Remember you can only claim on a Gap Insurance policy if the vehicle is written off by your motor insurer. This means that the vehicle would have to be in an accident, or stolen, and your motor insurer deems it beyond economic repair.
How often does this happen?
Well, there are around 600,000 vehicles written off each year in the UK, and that represents a 2-3% chance each year that your vehicle will become a total loss. That is not a huge chance, however if it did happen to you then how much do you think your vehicle may have lost in value since you bought it?