At a time when household bills are continuing to rise, and families across the UK are feeling the pinch that little bit more, it can be hard to justify additional expenses – especially when it comes to transport. But there are some expenses that could save you a significant amount of money on your car, as well as the stress involved in replacing one in the event of a crash. One such add-on is called GAP insurance, and could be a lifeline whether you total a new or leased vehicle.
GAP Insurance Explained
So, what is GAP insurance and why should you take it out? In essence, GAP insurance is a specialised form of insurance, taken out in addition to regular insurance coverage on a vehicle. A car’s standard insurance agreement will cover up to a certain amount of its purchase value, owing to depreciation over time. If you buy a new car and it leaves the showroom, its value depreciates fairly significantly almost immediately – in some cases losing as much as a third of its value.
As such, in the event of an accident, only your car’s worth at the time of the collision will be paid out by your car insurance – whether with cash or a vehicle of equivalent value. This can mean that a significant portion of your initial investment in the car is not covered by your insurance vehicle ovider – something that can especially sting if your car is totalled soon after its purchase.
This is where GAP insurance comes in. GAP stands for Guaranteed Asset Protection; GAP insurance covers the difference between your existing insurance coverage and the value of your vehicle at the time of purchase. As such, in the event of an accident or incident you can be sure your initial investment is safe.
What Does GAP Insurance Cover?
More specifically, there are three common and distinct kinds of GAP insurance coverage. The first is known as Contract Hire GAP Insurance, and can help you cover the total value of any finance or lease agreement you may have had with your vehicle. In some scenarios, where you have an agreement with a dealership of hire service, you can find yourself continuing to pay your monthly finance or lease fee after the accident, and after settlement with your insurance company. Here, GAP insurance covers the discrepancy, enabling you to pay off your remaining debt or finance agreement without personally suffering financially.
Another common type of GAP insurance is called Return to Invoice. This is the most straightforward kind of additional insurance, covering the difference between your insurance settlement and the purchase price of your vehicle. This kind of insurance protects your up-front investment in a car, ensuring you get all of your initial expenditure back after a crash or accident.
Lastly, there is also a form of GAP insurance that covers vehicle replacement, allowing you to get a new car of the same value as your car at the point of purchase, as opposed to the present moment in time.
When to Take Out GAP Insurance
Strictly speaking, GAP insurance is a non-essential form of insurance. However, there are a number of instances in which it can be beneficial to have; for example, you may be in the market for a new vehicle. GAP insurance can help soak up the additional costs related to buying a new car in the event of an insurance settlement.