If you purchase a brand new car, according to the AA, the second you drive it off the forecourt, it’s value will have dropped by a third, and will fall by a further 40% in the first year and up to an astounding 60% over the next three years.
What Is Gap Insurance?
If your car is stolen or written off, your payout from your insurer to you will be based on what your car is worth at the time of the incident. If you have bought a brand new car there is a risk that the payout is likely to be a lower amount than the vehicle is worth due to the high rate of initial depreciation of your new vehicle. When buying an equivalent car, there will be a ‘gap’ between the amount your insurers pay and the funds you require to replace your vehicle like-for-like.
This is the “gap” you can insure for with gap insurance. If your car is written off or stolen and it is less than 12 months old, your gap insurance company should pay for a brand new replacement car.
Dealerships normally sell gap insurance. If you do decide to buy it, the policies are priced between £100 and £300 for three years of cover.
If my car was stolen or written off, I’d be happy with a replacement car and I understand it wouldn’t be brand new. Would I benefit from getting gap insurance?
There is not much point in you purchasing gap insurance if you are not bothered by your car’s depreciation. Your insurer will provide you with a replacement car at the depreciated price.
I bought a used car, can I still purchase gap insurance?
There is little point in buying gap insurance on a used car as the gap between the price you paid and the amount that the insurer will pay you, will be much smaller. The gap policy could be worthless.
My car is less than 12 months old, and I have fully comprehensive insurance, do I need gap insurance cover?
If you have fully comprehensive insurance, some insurers offer you a new car replacement in the 1st year of ownership. Some policies even provide a new car for 24 months, so if your policy does offer a replacement car, you won’t need gap insurance. You need to check if this is part of your policy with your car insurance company.
I’ve taken out finance to purchase a car, should I consider gap insurance?
If you have taken a personal loan to finance your new car, it may well be useful to take out gap insurance. If your new car is stolen or written off, the insurer will only pay you the value that it’s worth at that time. You will still be expected to pay back the full amount of the outstanding loan. However, if you have taken out gap insurance the outstanding loan will be paid off in full, so you won’t be paying for a car that you can no longer own or drive.
Where is the cheapest place I can get gap insurance?
Gap Insurance is offered at most dealerships and specialist brokers; it is unlikely that you can buy a specific gap insurance policy directly from your car insurer.
Buying directly from a dealership works out as an expensive option, searching online usually results in lower prices.
What happens if something goes wrong when I claim?
If your gap insurer rejects your claim and you believe that this is incorrect, contact your insurance company directly. If the problem isn’t resolved within eight weeks, then you have the right complain to the free Financial Ombudsman.
If you are in dispute with your insurer, the Ombudsman, who is an independent adjudicator, will make a final decision on your claim.