Top 5 misconceptions about Gap Insurance

Gap Insurance is a subject that could be applied to a game of Chinese whispers. A very simple and straightforward type of financial protection can be over complicated by one person's comprehension to the next, and by the end of the explanation, you can easily be more confused than you were at the start. There are many common misconceptions regarding Gap Insurance, let us look at the Top 5 most popular examples we come across when we speak to enquiring consumers.

Top 5 Gap Insurance Misconceptions

1 - You can only buy it from a Motor dealer

Well clearly with the existence of GapInsurance123, Easy Gap,, Total Loss Gap and the other leading specialist brokers this is simply not the case. Gap protection, just like any form of insurance, can be bought from any independent source from the motor dealer. Indeed, there are several reasons why it may be advantageous financially to buy from any company other than your motor dealer.

There have also been recent reports that motor dealers are being priced out of selling gap insurance at all. The combination of higher tax implications and inferior supplier prices means buying from a motor dealer can be significantly more expensive than buying form an independent broker.

Bottom line, you can get gap insurance independently, and indeed it is likely to be the cheapest way to do so.

2 - Gap Insurance is only needed if you have finance on the car

This possibly stems from the days when the only type of Gap Insurance was a form of Finance Gap. These days Return to Invoice or Vehicle Replacement Insurance can be used for cash or purchases on finance.

Indeed, to take it a stage further you could take a Return to Invoice policy for longer than you have finance on a vehicle. Let's say you have a 3-year hire purchase agreement, and you take a 5 year RTI policy. This means that by protecting to the invoice price for the full five years, the first three can protect the finance settlement too. Years 4 and 5 you stand to get the entire invoice price back in the event of a claim due to theft or accident.

Bottom line, Gap Insurance can be applicable to both finance and cash purchases.

3 - Gap Insurance bought online is different from that bought from am motor dealer

Unlike other gap insurance 'myths', the source of this rumour is always the same, THE MOTOR DEALER! Of course, if you check review websites and internet forums you find no evidence of this claim at all.

The simple fact is that buying gap insurance from the motor dealer who supplies you the vehicle will nearly always be more expensive than buying online. You are at least as well protected with an online broker, and the policy is underwritten by an insurer just as the motor dealer policy is.

The motor dealers claim on this may have a small shred of truth though, as we believe there are very few motor dealer gap insurance policies that could match the policy features of a GapInsurance123 product. Remember a GapInsurance123 policy could feature:

1-5 year Return to Invoice or Vehicle Replacement Insurance

Cover for cars, vans, taxi's, motorbikes, motorhomes and driving school vehicles

A deferred start date if your motor insurer offered replacement cover in the first 12 months.

Cover for items such as paint and fabric protection, nontransferable warranty and the first £250 of your motor insurance excess

Transferable cover

Cancellable cover with a pro rata refund of unused premium

This brief list features some of the factors often not covered or offered with a motor dealers policy. Ask your dealer what they will protect?

So perhaps the dealer is right, the two types of policy just are not the same!

4 - You do not need Gap Insurance on a new car because your motor insurer offers replacement cover in the first 12 months

It certainly used to be the case that all motor insurance policies offered to replace your vehicle with another brand new one if it was written off in the first 12 months. In 2012, this is not the case anymore yet there are still a number of insurers who will offer this.

Does this mean Gap Insurance is not required?

Obviously, in the first 12 months, this may well be a true statement, yet how many of us will just keep the vehicle for 1 year? What about years 2, 3, 4 or 5?

Most Gap Insurance policies must be taken within 180 days of the vehicles purchase, so leaving your consideration for gap the full year that your motor insurer covers you will simply put you outside the permitted time frame for purchase.

The answer? You can defer the start date of a GapInsurance123 RTI or VRI policy for up to 12 months. This means you could defer a 3-year policy and get a full 4-year cover.

Bottom line, it is great if you have replacement cover on your motor insurance, but if you intend on keeping the vehicle longer then you may still want gap insurance.

5 - There will be a problem if the company who sells me Gap Insurance goes out of business

It is a sad fact of life that motor dealers and insurance brokers can be sold, or even cease to exist. If you buy Gap Insurance, and your 'retailer' goes out of business will this effect your cover?

In short, no it certainly should not.

We say this advisedly because there are steps you need to check to ensure you have some back up if this happens. If the 'retailer' goes bust, the policy is underwritten by an insurer who will abide by the policy terms if you make a claim. Remember if you buy a policy it is not the motor dealer who you make a claim off, it is the policy administrators and underwriters.

So it is of little consequence if the 'retailer' ceases to exist.

However, what happens if the insurer goes out of business? Well, this is quite unlikely but we have seen even large financial institutions come under pressure in the last few years. Here is where you need to check that the policy is backed by the Financial Services Compensation Scheme. This can provide a valuable back up if the insurer cannot meet its liability to you.

Bottom line, check the underwriter of your policy and ensure you are backed by the FSCS.

Hope you found our guide to Gap Insurance misconceptions useful and hope you understand the issues a little better now!