Heard of Gap Insurance

GAP insurance can provide important financial protection during the initial years of your car's life if you have a finance, PCP, lease or contract hire agreement.

If a loss occurs, GAP insurance will pay the difference between the actual cash value of the vehicle as determined by your insurance Company, and the current outstanding balance on your finance agreement. Gap Insurance will also cover the difference between the cash value of the vehicle and the outstanding amount on your lease or contract hire agreement. Dependent upon the type of gap insurance policy it will also pay the difference between the original purchase price and the insurance Company valuation.

If your vehicle has been written offdue to an accident, theft, fire, flood, tornado, vandalism, or hurricanes your insurance Company more often than not pays the actual cash value, usually based on one of the car valuation guides, such as Glass's Guide or CAP. The insurance pay-out will virtually always be less than the actual retail valuation. It is often significantly less than the actual amount you still owe on your loan, or the amount due on a lease or contract hire agreement.

The disparity between your insurance Company pay-out after a claim and the outstanding amount you owe on your finance agreement equates to the financial shortfall or "gap" you will be responsible for.

To illustrate this a little more effectively here is an example of how the financial "GAP" occurs:

You purchase a used car at a cost of £15,000 and you drive it off the forecourt.

After paying the deposit you owe £14,000 in car finance payments over 5 years (5% interest loan = £264 per month in car payments). The total amount payable is £15842 plus your deposit!

You arrange your fully comp motor insurance at a cost of £500 and assume that you have all the protection you need in the event of a claim!

18 months later you have an accident while you are still upside down on your loan or lease ("Upside down" means owing more on a car than it's worth) and your vehicle is a write off.

The insurance Company decides that the actual valuation of the car is only £8,000 but at the time of the loss you still owe the finance Company £12,000!

If you have a GAP insurance policy it will pay the difference between the motor insurer's valuation and the outstanding finance settlement amount, or, depending on the type of the policy, the gap between the insurance valuation and the original purchase price of your vehicle.

Here's how it works:

Finance settlement amount at the time of accident: £12,000

Vehicles actual value at the time of accident: £8,000

Your Motor Insurance Company pays: £8,000

GAP insurance pays the difference between what is owed to the finance Company and what the Insurance Company pays: £4,000.

Usually a new car depreciates by around 30 per cent in the first 3 months of ownership!

Many car owners incorrectly take for granted that if their car is written off, it will be replaced at the amount they paid, or at least the amount they owe the finance Company. This is not true with the vast majority of car insurance policies. Whist some insurance Companies do offer depreciation cover, typically most GAP policies are sold by online gap insurance providers or by car dealers.





For information and advice on Gap Insurance and to compare Gap Insurance quotes from the top online providers, visit www.gapinsurancereviews.co.uk.