What is Gap Insurance? Well Gap Insurance, or Guaranteed Asset Protection to give it a full title, is a form of motor insurance, separate to you own vehicle insurance. Unlike you motor insurance policy, Gap Insurance is not compulsory. So how does it work,. and why may you consider it?
Gap Insurance and your vehicle
Gap Insurance provides protection for one aspect of your vehicle ownership that your own motor insurance does not, depreciation.
The vast majority of motor vehicles will lose value over a period of time, it is a fact of life. Some vehicles can lose up to 60% of their value in the first 3 years of their life. Your motor insurance, as ‘fully comprehensive’ as it may be, will only cover the vehicle value at any given time. So, if the vehicle is stolen, or in an accident that causes the motor insurer to write the vehicle off as a total loss, the owner could be faced with losing a significant amount of money.
This can leave several issues for the vehicle owner:
- You may have to find a tidy sum of money to replace the vehicle
- You may have outstanding finance that may be in excess of the market value paid by your motor insurer
- You have lost thousands from your original investment
This is where Gap Insurance can help. By taking a Gap Insurance policy, you can insure against these eventualities.
There are several different types of Gap Insurance policies, allowing for different features of cover. We will expand on these in further articles. In brief however they are as following:
Finance Gap Insurance – will cover any shortfall between your vehicle value and the outstanding finance settlement
Return to Invoice – will cover any shortfall between the vehicle value and the original invoice price you paid.
Vehicle Replacement Insurance – will cover the shortfall between the vehicle value and the cost of replacing the vehicle in the future. So if the equivalent vehicle is 15% more expensive in 3 years time, then you can cover this replacement cost.
Where to buy Gap Insurance?
It has often been the case that the only place that you could buy gap insurance is from your motor dealer. However, with this being an insurance item, many motor dealers have moved away from such offerings, and specialist Gap Insurance brokers are now a popular source.
Either way, if you are concerned how much you may lose if you vehicle is written off, then Gap Insurance can be a good way to protect yourself.