Orlando Harmon
GAP insurance is an optional form of insurance that bridges the gap between how much your insurance company will pay out in the event of a vehicle write-off and the amount required to replace your car. It is not compulsory, but it is often encouraged when buying a vehicle. This is especially true if you have used a PCP _(Personal Contract Purchase)_ deal to help finance your car. This is because, in the event that your car is written off or stolen, the insurance payout from your regular insurance might not cover your outstanding debt. GAP insurance can, therefore, protect you from high-interest rates and outstanding finance payments.
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What You'll Learn
- GAP insurance covers the difference between insurance payout and finance debt
- It's especially useful for PCP deals, which can leave you with large outstanding payments
- GAP insurance is optional, so you need to weigh up the cost and benefit
- It's more beneficial for new cars, but can still be useful for used cars
- GAP insurance can be purchased for one to five years
GAP insurance covers the difference between insurance payout and finance debt
GAP insurance, or Guaranteed Asset Protection insurance, is an optional product that covers the difference between the amount you owe on your auto loan and the amount your insurance company pays out if your car is stolen or written off in a total loss incident. This type of insurance is particularly relevant to PCP (Personal Contract Purchase) finance deals, as the vehicle's value will likely depreciate faster than your debt to the finance company.
In the event of a total loss, standard auto insurance will only pay an amount up to the value of your vehicle at that time. This can result in a significant gap between the insurance payout and the amount you still owe to the finance company. For example, if you receive an insurance payout of £12,000 but still owe the finance company £17,000, you will be left with a £5,000 shortfall. A Finance GAP policy would cover this £5,000 difference, allowing you to clear your debt without any remaining finance.
GAP insurance is especially beneficial for PCP buyers as it provides protection from high-interest rates and lengthy finance periods. If your PCP deal includes a large balloon payment at the end, GAP insurance can ensure you are not left with this outstanding payment if your vehicle is written off.
While GAP insurance is more commonly associated with new cars, it can also be taken out on used vehicles that meet certain criteria, such as age and mileage. It is worth noting that GAP insurance is not compulsory, and there are instances where it may not be necessary. For example, if your standard car insurance policy includes a brand new replacement vehicle in the event of theft or a write-off, GAP insurance may not be required.
Overall, GAP insurance can provide valuable peace of mind, ensuring that you are not left with a substantial finance debt in the unfortunate event of your car being stolen or written off.
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It's especially useful for PCP deals, which can leave you with large outstanding payments
PCP, or Personal Contract Purchase, is the most popular way to finance a car. If you've used a PCP deal to buy your car, gap insurance can be worth looking into. This is because, in the event that your car is written off or stolen, the payout from your car insurance provider will likely not cover the remaining debt on your vehicle. This is due to the fact that a car's value drops by about a third as soon as you drive it off the forecourt and then by about 60% over three years. As a result, you may be left with a large outstanding payment, also known as a balloon payment, which you will have to settle yourself.
Gap insurance, or Guaranteed Asset Protection insurance, can cover this difference by bridging the gap between the payout from your car insurance provider and the remaining debt on your vehicle. This will allow you to resolve any outstanding finance and avoid being left with a large bill for a car you no longer have.
There are several types of gap insurance policies available, including Return to Invoice Plus, Vehicle Replacement Plus, and Agreed Value GAP insurance. Return to Invoice Plus policies will cover any financial shortfall by paying out the difference between the insurance payout and the original invoice price. Vehicle Replacement Plus will cover the new price of the exact model and specification of your car, even if the price has increased. Agreed Value GAP insurance is an option for older vehicles that may not meet the requirements for other policies.
When considering whether to purchase gap insurance, it's important to weigh up the odds of needing to use it against your own personal financial situation. If you're satisfied that your savings or other sources of funding would cover the monetary shortfall, then you may not need gap insurance. However, if you're concerned about your ability to cover the shortfall, then gap insurance may provide valuable peace of mind.
It's also worth noting that gap insurance is not compulsory and there are some instances in which it may not be necessary. For example, if your car insurance policy provides a brand new replacement vehicle in the event that your car is written off or stolen, then gap insurance may not be worth acquiring. Additionally, gap insurance policies sold by dealerships tend to be significantly more expensive than those found online, so it's important to shop around to get the best deal.
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GAP insurance is optional, so you need to weigh up the cost and benefit
GAP insurance is not compulsory, but it is a great option for most drivers, especially with PCP deals. If your car is stolen or written off, your insurance provider will pay out its current market value, which is likely to be less than the purchase price, especially if it is a new vehicle. This could leave you with a large outstanding payment to settle. GAP insurance covers the difference between the amount your car insurance provider pays out and the original invoice price or the cost of a replacement vehicle.
There are different types of GAP insurance policies, and it is worth shopping around to get the best deal. The two main types of GAP insurance that benefit car finance deals are Return to Invoice Plus (also called Back to Invoice Plus) and Vehicle Replacement Plus. A Finance GAP policy will cover you for the shortfall between your insurance payout and your finance debt, so you can clear your debt. A Vehicle Replacement GAP policy will pay you the difference between your insurance payout and the new price of the exact model and specification of your car.
If you are satisfied that your savings or other sources of funding would cover the monetary shortfall, then you may not need GAP insurance. However, if you are worried about whether you could find the shortfall amount, then GAP insurance may provide reassurance. It is worth noting that GAP insurance is more beneficial for new and relatively new cars, but it could still save you money on a used car providing it meets the qualifying criteria.
In summary, GAP insurance is optional, and you need to weigh up the cost and benefit. If you are concerned about being left with a large outstanding payment if your car is stolen or written off, then GAP insurance can provide peace of mind. However, if you are happy with a replacement car of a similar age or condition, then you may not need GAP insurance.
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It's more beneficial for new cars, but can still be useful for used cars
GAP insurance is not compulsory, but it is a great option for most drivers, especially if you have taken out a PCP loan to pay for your car. This is because, if your car is written off or stolen, your insurance provider will only pay out its current market value, not the price you originally paid for it. This can leave you with a large outstanding payment, with nothing left to put towards a new car.
GAP insurance is more beneficial for new cars as they depreciate in value faster than you can pay off your debt to the finance company. A new car can lose up to 35% of its value in the first year, and 60% over three years. This means that if your new car is written off or stolen, your insurance payout will likely not be enough to cover your finance debt. GAP insurance covers this shortfall, allowing you to clear your debt and put any remaining money towards a new car.
However, GAP insurance can still be useful for used cars, providing they meet the qualifying criteria. Used cars can be found in great condition with very low mileage, and the price of used cars is currently very high. GAP insurance can protect your investment and save you money if your used car is written off or stolen. It is worth shopping around to ensure you get a good deal on GAP insurance for a used car.
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GAP insurance can be purchased for one to five years
GAP insurance is available for one to four years, with the option to make monthly payments or pay upfront. The longer the policy, the more you will have to pay. If your car is written off or stolen during the period of your policy, it will end, and you will need to take out a new one on a new car.
GAP insurance is particularly useful if your PCP finance deal charges high rates of interest, or if your PCP agreement is spread over an extensive period, for example, over five years. This is because the vehicle will lose value faster than you are paying off your debt to the finance company. In this case, if your car is written off or stolen, the payout from your car insurance won't be enough to cover your finance debt. GAP insurance covers this difference, so you won't be left with a large outstanding payment for a vehicle that has been stolen or scrapped.
It's important to note that GAP insurance is not compulsory, and you may not need it for the entire length of your PCP agreement. Once you owe less than what the car is worth, you can drop the insurance. GAP insurance is also more beneficial for new and relatively new cars, although it could still save you money on a used car if it meets certain criteria.
When deciding whether to purchase GAP insurance for one to five years, consider the length of your PCP agreement, the level of interest on your payments, the market value of your vehicle, and whether you can afford to cover the difference between your car's value and your finance debt if your car is written off or stolen.
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Frequently asked questions
Guaranteed Asset Protection (GAP) insurance covers the difference between the amount your car insurance provider pays out and the price you originally paid for the car.
GAP insurance is not compulsory, but it can be useful in certain situations. If your car is written off or stolen, your insurance provider may only pay out its current market value, which may not be enough to cover your outstanding debt. GAP insurance can cover this difference, so you're not left paying for a car you no longer have.
If you have a Personal Contract Purchase (PCP), your vehicle will likely lose value faster than you can pay off your debt. In this case, GAP insurance can be particularly beneficial as it can protect you from high finance charges and ensure you're not left with a large outstanding payment if your car is stolen or written off.
There are several types of GAP insurance policies, including Return to Invoice Plus, Vehicle Replacement Plus, Agreed Value GAP insurance, and Lease Cover. The best policy for you will depend on your personal circumstances, the level of cover you need, and the market value of your vehicle.
