What is ‘gap insurance’ and do you need it?

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Ever thought what would happen if the car you drive was written off and you claimed for a replacement on your insurance? Would you get back exactly what you paid for it, or the second hand value? iStock_000015752217XSmall

Most people would, of course, prefer all their money back so they can spend it on an equivalent vehicle, but many aren’t aware that their car insurance would only provide them with the like-for-like value at the time of the claim.

Old banger or nice new motor?

The age, mileage and repair history would be taken into consideration, and you could end up with only enough to spend on a car that’s worth far less than the original one you bought.

Gap (Guaranteed Asset Protection) insurance is available to ensure you’re not left out of pocket. Gap policies are quite similar, with the most comprehensive covering the difference between the market value at the time of the claim and the original purchase price or its brand new replacement cost, whichever is the greater.

Gap insurance usually an ‘add on’ to standard cover

Gap insurance is usually sold as an ‘add on’ to standard cover, and is also available for second hand cars which, again, should mean you get back the cost of the vehicle at purchase, rather than a number of years down the road, or it’s replacement equivalent.

Roadworthy example

You may, for example, have bought Britain’s most popular car, a Ford Fiesta, five years ago and paid £12,000 for it.

A lorry then runs into it and it’s written off. However, cars depreciate relatively quickly in value a five-year-old equivalent with the same mileage is now only worth £6,000.

Unless you had gap insurance, your cover provider would only pay out £6,000 and if you wanted to buy a brand new Fiesta, you’d have to make up the difference, which could be even more than £6,000 after taking into account vehicle inflation.

Having Gap cover would mean you’d get the full £12,000 back or possibly more if the latest model equivalent cost more and you had the most comprehensive Gap cover possible.

It’s not that expensive, but don’t take the car dealer’s first offer

If you decide that gap insurance is a good idea, whatever you do don’t just sign on the dotted line there and then when you’re buying your car.

It may be that you’ve got lucky and whatever price for gap insurance they’re offering is highly competitive, but in most cases it probably won’t be.

Always shop around

As with general car cover, it’s always best to shop around; conduct online searches using insurance comparison sites and call brokers to see if you could do better.

Gap insurance won’t cost you an arm and a leg. It very much depends on your age, driving record and type and cost of vehicle, but for the majority of drivers, it should cost more than between £3 and £6 a month.

Gap cover limits: Age, mileage, value

As most cars tend to become more unreliable the older they get, gap insurance is usually only available for vehicles up to 7 years old, although a few providers do go over this figure (again, depending on the driver and vehicle), but usually not by much.

Additionally, if the car is only 3 years old, but has already done a huge amount of mileage, you could struggle to find cover.

The claim limit will be agreed at the start of the gap insurance policy, so ensure this is a figure you’re happy with (i.e. it matches what you paid for the car!).

Why wouldn’t you have gap cover?

Some people think that they’re such safe drivers, or it’s so unlikely that their vehicle will be stolen, that Gap insurance isn’t worth it.

Many will go through their whole vehicle-owning lives never having to claim for a written off or stolen vehicle, but it’s worth bearing in mind the statistics.

According to the well-known motoring guru Honest John, some 450,000 vehicles are involved in incidents leading to a write-off each year on UK roads.

The RAC puts the figure at 4 in every 100 cars. In other words, an average driver is buying Gap cover for a 4% risk of a write-off incident. The risk level, of course, very much depends on the driver.

The number of cars stolen each year has dropped dramatically compared to 20 years ago, but it’s still a sizeable figure which Honest John says last year was around 100,000.

Policy Expert

The customer service team at Policy Expert is always on hand to help – either online or over the phone. Whether you want assistance in finding the right policy or even handling a claim, we make sure it’s all handled by experts. For more information on what‘s covered under your policy, speak to one of our experts on 0330 0600 602 or email ask@policyexpert.co.uk

The views expressed here are solely those of the author and do not necessarily reflect the views of Policy Expert.