Gap insurance can be a very confusing world, especially if you have never had experience with it before. Though once you are familiar with it, I believe it is safe to say that you will wonder why everybody doesn’t have it. The financial benefits of gap insurance really are astronomical.
Many people don’t realise that if their car happens to be written off, like 600,000 others in the UK each year, or stolen, then they may find themselves in a catastrophic financial situation. Your motor insurance, unbeknownst to many people, will only award you with the valuation of your car on the day it is written off/stolen. Due to car depreciation rates, this could be a significant amount lower, than what you originally paid. The average car depreciates by 50% within it’s first three years.
Let me explain further. If you bought a car for £15,000, due to car depreciation, within two years the value of your car could have dropped to £8,000, which is the amount you will gain from your motor insurance if it is written off/stolen. As you can see, this leaves you with a £7,000 shortfall, which is rather a lot of money to find yourself out of pocket with. This is exactly where gap insurance come in. Gap insurance is a supplementary insurance that sits on top of your motor insurance, to ensure that you don’t find yourself in a financially devastating situation, such as this one, £7,000 out of pocket.
Which type of gap insurance?
Finance Gap insurance is the most simple form of gap insurance and this literally pays your finance or contract hire company, along with your motor insurance, the outstanding rentals or financial agreement that is still owed from you if your vehicle happens to be stolen or written off.
Return to invoice gap insurance will quite literally, return you to your invoice price, so in the example used, along with your motor insurance would pay the £7,000 to ensure that you have not lost out on any money, returning you to the £15,000 that you originally paid.
Vehicle replacement gap insurance will, along with your motor insurance, award you with the amount of money that is necessary for you to purchase the same equivalent vehicle again if your car happens to be written off/stolen, same age, mileage etc. Due to car appreciation, depending on the amount of time that has passed since you originally purchased your vehicle, it could be a significant amount more to be able to buy the same specification of vehicle again.
Whatever type of gap insurance you choose, could help you save thousands of pounds if you do happen to find yourself in an unfortunate situation as this one. The consequences could be catastrophic and it really is not worth the risk. Think about how much easier it would be to just be able to call your gap insurance company and sit back with no financial devastation, your finance company paid, your invoice price rewarded, or the same exact car bought again if that is what you wanted, rather than worrying about the amount of money you have lost. This will leave you to get on with the important things, like getting better after an accident, or focusing on getting a new vehicle. Picking a claim limit, is an important part of the gap insurance process, as this is the absolute highest amount that your gap insurance policy will pay out, nobody can tell you which claim limit is correct, as nobody has an eye into the future and can determine how much vehicles will be worth etc, so think carefully about the right claim limit for you, depending on which type of cover you choose will also have an effect on this.
Gap insurance could literally stop financial devastation in an unfortunate situation
Nobody believes it is going to be them that is involved in an accident or the subject of car theft but it has to happen to someone. Atleast if you have all the cover possible to ensure your financial safety, you can never find yourself with a shortfall that could potentially financially devastate.