Is Gap Insurance a good investment?
GAP insurance is an addition to your standard motor insurance premium, and though it's an affordable one many drivers wonder if it's worth it. A large portion of drivers resent the cost of their regular insurance premiums, why would you want to add another cost on top of that? The reality is, however, that GAP insurance has a lot to offer drivers who are willing to invest.
What is GAP insurance?
To better understand what it can offer, it's first essential to understand what GAP insurance actually is. GAP stands for Guaranteed Asset Protection insurance, and it's essentially insurance against the depreciation of your vehicle.
GAP insurance is designed to cover the difference between what your vehicle was worth at the time you insured it versus what it's worth at the point it's declared a total loss - it prevents you from losing out if you need to make a claim.
How does GAP insurance work?
Before thinking about GAP insurance, let's first understand how normal insurance works relating to the value of your vehicle. The way normal car insurance works is that you give your car's estimated value when you first insure it, and that's the value that's worked with. The reality is, however, that most cars are a heavily depreciating asset, and by the time you need to make a claim your vehicle may be actually worth considerably less than it was when you first estimated its value while insuring it.
Insurance companies do not take this into account with regular insurance policies. It's understood that in the event you need to make a claim, the values that they will work with when handling that claim are what your vehicle is worth at the point of the accident. So in simple terms, you have to stomach the cost of the depreciation of your vehicle in the event that it's written off.
If you own your car outright, this may be a risk you're willing to take - you might want to gamble the likelihood of you being in an accident versus the cost of taking out additional insurance. But the reality is that GAP insurance is still worthwhile.
When is GAP insurance most useful?
GAP insurance becomes invaluable when you have bought your car using finance or hire purchase. As many new cars are bought with one kind of finance deal or another, this makes GAP insurance a key consideration for a large number of drivers.
The reason is that if you have an accident with a car you have bought on finance, you are still going to be liable for the finance payments afterwards. If, for example, you bought a car for £10,000 using finance and your insurance company writes it off to the value of £2,000, you will still be liable for the finance payments on that original £10,000 purchase price.
If your insurance payout does not factor in the depreciation of your vehicle, you can be left in dire financial straights with no way of paying off your outstanding balance on your finance agreement or of using the money to buy a replacement vehicle. This is where GAP insurance comes in, as it can cover the difference between what your insurance company offers you in a payout on your written off vehicle, against what the vehicle was worth when you first took out the insurance policy.
So, is GAP insurance a good investment?
Only you can ultimately make the decision, but you have to think about what GAP insurance offers you protection against. If you are going to buy a car using finance, and you end up having an accident you might be in a situation of being considerably out of pocket and still liable for finance payments. GAP insurance can help ensure in the event of an accident that you're able to get out of any contracts you may still be a part of, or that you can replace your vehicle with one of similar value.
GAP insurance is a broad term that encompasses a number of individual insurance packages - there's Return to Invoice, Vehicle Replacement Insurance, Finance GAP, and Agreed Value to name just some of the specific insurance packages available.
GAP insurance is a wise investment, and the right package will be a barely noticeable addition to your regular premiums, but offer you a considerable amount of financial protection in the sad event your vehicle is declared an insurance write off.
To find the kind of gap insurance UK drivers are investing in, get a quote from Direct Gap today.