Motor GAP Cover

In the event of a vehicle being stolen and not recovered or in an accident and declared a total loss, few customers will receive a motor insurance pay out equivalent to the original purchase price from their motor insurer. GAP is important as vehicles depreciate over time and average figures suggest that a 2-year-old vehicle would be worth about 65% of its original value, a 3-year-old vehicle 45% – 50% and for 4 years its value could drop to 35%-45% (these may vary depending on vehicle make and model). Your insurer will value your vehicle in line with the depreciation.

GAP insurance covers the difference between your insurance settlement at the point your vehicle is written off or declared a total loss and the purchase price of your vehicle when you bought it. The implications of having a total loss:

• You may still have a sizeable outstanding liability on your financing commitments.
• You may have to make do with a lower specification replacement vehicle as the insurance settlement figure will be based on the value of the vehicle on the date of your total loss.

Here’s an example

If your car is declared a total loss by your motor insurer, your insurer will offer you a final settlement based on the vehicle’s value on the day of the accident.

As we know, there is likely to be a depreciation on your vehicle, therefore is it very unlikely to be the amount that you paid for the vehicle.

Do you need GAP insurance?

It is very important to ask yourself if you really need GAP insurance.

A comprehensive motor insurance policy will pay out for a replacement car that is like-for-like for the one you had when it was stolen or written off – so if you’re happy with a second-hand replacement then you really don’t need GAP cover. Even if you buy the car on finance you’ll still be driving the same make and model with a similar mileage – so you’re theoretically no worse off.

It’s also worth noting that if your car is less than a year old your insurance will likely pay out the value of buying a new car (usually because there is not many second hand vehicles around).

But – if you’re concerned about the depreciation value of your car then it’s worth considering GAP cover.

Car value depreciation

You can read a fantastic guide to car value depreciation here – but a new car will depreciate approx. 40-60% during the first three years. That means if you buy a car for £26,000, in three years your car may only be worth £10,400.

In the first year alone this can be up to 40% – so again, that £26,000 car could be worth just £15,600 within 12 months of driving it off the forecourt. If you had finance on this vehicle and it was written off after 12 months you would likely owe way more than the £15,600 you could get from an insurance pay-out, leaving you considerably out of pocket.

Car depreciation is far more exaggerated for new cars than second-hand cars. So, if you’re buying a second hand car GAP insurance may not be as useful.

Choosing a car

Some cars depreciate far quicker than others – so you can reduce the risk of a financial loss by choosing your car wisely – but if your heart is set on a new car that does have a tendency to depreciate quickly then GAP cover is probably a good idea.

Types of GAP insurance

There are several different types of GAP insurance – but we tend to provide access to two types:

Combined return to invoice GAP

Combined return to invoice GAP insurance pays you the difference between the motor insurers ‘market value’ settlement at the point of ‘total loss’ and the original invoice price you paid, or the amount outstanding on finance, whichever is the higher.

Contract hire and lease

Contract hire and lease pays the difference between your motor insurers settlement and any outstanding rental/lease payments you may have. This policy is for you if you hire or lease a vehicle and you can take an option of covering any upfront lease or rental payments up to £3000.00.