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Gap insurance is a way of protecting the shortfall between the amount you paid for your vehicle (and any outstanding finance you may still have on it), against the amount your motor insurance would pay out in the event of a total loss.
When a new car is purchased, it automatically loses value as soon as you drive it out of the dealership. The car continues to depreciate throughout the course of its lifecycle. If you are unfortunate enough to be in a car accident or if the car in question is stolen, fully comprehensive insurance will pay you what the car is worth in the event of a total loss. The problem is, the current value of the car will differ from its original price tag leaving a shortfall of thousands of pounds.
Gap insurance ensures that in these instances, the ‘gap’ between your original purchase price and the value your insurance company gives your car is paid by the gap insurer and not by you.
Is it worth it?
When you compare the price of gap insurance with the amount you could lose in the event of a total loss, then yes!
Let’s say you purchase a car and you pay £20,000 for it with the help of finance. If, after only one year it is either stolen or a write-off from an accident, then your insurance company would most likely offer you £15,000, as it is estimated that a car’s value depreciates by 25% in its first yet. In this instance, there is a £5,000 shortfall, which you will still be required to pay to clear your finance loan, even though you no longer have the car for which you are paying.
Gap insurance is typically a small premium that is made as a one-off payment and, as all insurance the cost will depend on the vehicle and your driving history. However, they are minimal in cost when compared to what you save if you need to use it.
Where is it available?
Like your normal car insurance, you can get gap insurance from your car dealership, comparison websites, or from a specialist. Typically, gap insurance will be more expensive. Comparison websites can be useful if you know exactly what you are after, but if gap insurance is new to you or if you want to discuss unique requirements, specialist gap insurers can offer impartial advice and competitive prices.
Advice supplied by online gap insurance provider ALA Gap Insurance
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