26th June, 2023
We know that your hard-earned money is incredibly important, and if you recently used it to splash out on a new car then you’ll want to make sure that you’re not at a financial loss should your vehicle be written off or stolen. However, cars (especially those that are brand new) are notorious for how quickly their value depreciates.
Depreciation is the difference between the amount that you paid for your vehicle and the amount that your insurer is willing to pay out in the event of theft or a write off. It’s expected that your car will fall in value by up to 40% in your first year of owning it, and in three years it can fall by as much as 60%.
There are many factors that contribute to depreciation, such as total mileage, number of previous owners, service history and how economic the vehicle is – especially with new regulations coming into place, such as the ULEZ in London.
Guaranteed Asset Protection, also known as GAP insurance, is designed to cover this difference so that you’re not at a financial loss should the worst happen to your vehicle.
Who may benefit from GAP insurance?
As new vehicles are prone to depreciating quicker, GAP insurance is often best suited to those who have a newer model. Not to mention that many GAP insurance providers won’t cover vehicles that are older than 10, or in some cases even 8, years.
That’s not to say that you can’t take out GAP insurance on the likes of a second hand vehicle, but it’s important to keep in mind that it won’t be quite as rewarding given that it isn’t likely to depreciate as quickly as if it were brand new.
What types of GAP insurance are there?
As each driver is different, there’s various types of GAP insurance available to suit a wide range of needs. These include:
- Return to invoice – with this type of cover, you’ll get paid the difference between what your insurer is willing to pay out at the time of a claim and what you actually paid for the vehicle.
- Vehicle replacement – similar to return to invoice, but this will cover the difference between what your insurer would pay out versus the cost of a brand new version of your vehicle at the time.
- Contract hire – this cover is also known as Lease GAP insurance, and would help you to pay the remainder of your vehicle lease contract plus any early-cancellation fees.
- Return to value – particularly ideal for second-hand cars, as this type of cover will cover the difference between your insurers pay-out and the value of your vehicle when it was new.
- Finance cover – this is similar to contract hire as it is designed to cover the repayments to your finance company.
It’s important to keep in mind that GAP insurance is separate to your motor insurance policy, so it will run alongside it at an extra cost.
GAP insurance isn’t a legal requirement, so you have time to shop around in search of a deal that suits you. Dealerships are known for overcharging when it comes to GAP insurance, so it’s a good idea to have look online before you make a decision.
What isn’t covered?
As with any type of insurance policy, there are certain exclusions that would mean cover won’t apply. These exclusions may vary depending on your chosen insurer so it’s always incredibly important to read the policy documents carefully.
There are some common exclusions, such as claims that arise from driving under the influence, or your vehicle being driven by someone not covered by your insurance. Other possible exclusions include using your vehicle for the likes of rallying or racing due to the high risk nature of such activity, and in some cases using your vehicle for services like a taxi.
Written by: Shannan Errington
*Please note that the above information has been gathered through secondary research. The information provided is not based on our opinion. You should seek further guidance and information before making an informed decision.
Sources:
https://www.comparethemarket.com/car-insurance/content/gap-insurance/
https://motorway.co.uk/sell-my-car/guides/car-depreciation-guide
