The question has been asked as to whether or not a driver would require GAP insurance when they attempt to buy a car on a finance plan. In order to provide a suitable answer, though, we need to identify what exactly GAP insurance is, as well as noting what different types of GAP insurance are available, and the main positives and negatives of GAP insurance for a client. All of these topics are going to be covered in this article, which should ultimately provide the most suitable response to the main question posed.
What Is GAP Insurance?
GAP Insurance stands for Guaranteed Asset Protection, and the idea of this is that it will cover the difference in price between how much you have paid for your car as part of a finance plan and how much you would get if your car insurance policy needed to pay off if it were ever required for any reason.
This is important because insurance payments are only made by a provider if something unexpected happens to the vehicle out on the road, a perfect example being a major road collision whereby the driver is left unharmed, but the vehicle is a write-off, and with the incident not being the fault of the motorist. In that case, you would only receive insurance based on how much the car is worth, which at that point will have seen a significant depreciation in value, and not on how much you will have paid on the vehicle at that stage, which depending on how far into the finance plan you have gotten could be a rather high figure. It can be a frustrating scenario for the driver, which is why the inclusion of GAP Insurance can be so important because it covers the difference between the two values, which ultimately helps to strengthen the motorist’s financial position far more so than it otherwise would have been, not least because in the aftermath of such a situation, the driver would also have to try and find a way to buy a new car as well. You can either purchase GAP Insurance separately, or you might be offered this option by your dealership when you first enter into an agreement, and you have the opportunity to mention it to the provider if it is not previously brought up by them.
What Different Types Of GAP Insurance Are Available?
When it comes to GAP Insurance, there are four main types for drivers to seriously consider.
- Vehicle Replacement GAP Insurance,
- Return To Invoice GAP Insurance,
- Return To Value,
- Finance GAP Insurance.
The first of these is for Vehicle Replacement GAP Insurance, which is the most basic option as it covers the exact amount between what you would get from the insurer and how much your vehicle would be worth if it were bought at that particular stage, which could actually lead to you making more money than what you have paid up to that point. The second possibility is for Return To Invoice GAP Insurance, which is a figure that represents the difference between the insurance pay-out and what you had originally paid for your vehicle, which is a path worth considering for either new or second-hand vehicles; it merely comes down to what you had paid at the beginning. Then there is Return To Value, which is the variance between the amount that you receive from your insurer and what the car was actually worth when you first bought it, meaning that if you happened to get a significant offer on the vehicle at the time that the agreement was arranged, you could actually end up making a pretty penny, since this would be based not on the discounted amount but on the car’s actual market value. Finally, there is also Finance GAP Insurance, which is a bit more straightforward as it covers how much money you would still be required to pay the finance provider in the event that the insurance pay-out would not cover all of your debts in the aftermath of your vehicle being written off. In this case, you would be left without a car (unlike the previous three types of GAP Insurance which would take steps towards finding your next vehicle), and it also wouldn’t provide you with any extra money; it would, however, clear all of your debts relating to the original vehicle, and thus give you a clean slate as you decide what your next step will be in regards to the potential purchase of a new motor.
Benefits Of GAP Insurance
Perhaps the most important reason for deciding to have GAP Insurance in place considers your position in the unlikely and unwanted circumstance where your vehicle has been in a collision and is no longer usable. It is bad enough that you will have to try and recover from the shock of the incident, but looking beyond what has happened, it will also prove problematic to figure out how to buy a brand new car, but most of all, you will also be down by hundreds if not thousands of pounds, even after you have received your insurance pay-out. GAP Insurance, as the name suggests, fills in any gap between what you have paid and what you would have owed, and as we have outlined above, there are situations where you might even receive more money than what the car was worth and/or what you will have owed on the model. As with any form of insurance, the hope is that you will never have to make a claim on GAP Insurance because the hope is that you will not be caught up in an accident on the road; however, it is well advised to be covered for almost any eventuality, and whilst the dealership will be most interested in whether you have your standard driving insurance, having the backup of GAP Insurance is highly recommended from a financial standpoint. Simply put, GAP Insurance is an option well worth considering for any driver regardless of their age or experience behind the wheel.
Downsides Of GAP Insurance
As for the reasons why GAP Insurance isn’t favoured by everybody, probably the most common viewpoint shared by motorists will be how, unlike regular driving insurance, amongst the four types of GAP Insurance, they do not cover you in every situation that you could find yourself in while you are driving. This includes situations where the car insurance firm does not feel that your vehicle is a total write-off, even if all of the evidence suggests that it is no longer operational and fit to be on the road; any additions in what the vehicle is worth based on mostly cosmetic feature additions that you have made during your time in possession of the car; any scenarios where the excess payment on your car insurance exceeds a particular figure (which will likely be agreed in advance as part of your original insurance agreement); any damage and/or loss in value of the car caused by using it in a sporting or racing capacity (which is a little less likely but could still be a factor); and if for some reason you did not have a full and proper insurance policy for your general driving, though you would not be accepted for a car purchase anyway if this was the case, so this is more or less a reminder that if you want GAP insurance, you need to have your main insurance policy in place first.
GAP Insurance is not a necessity for drivers, since the most important thing is for a motorist to have their main insurance policy arranged, and they could theoretically get by without needing GAP Insurance, even if a road accident did occur. Nevertheless, GAP Insurance is definitely better to have than to not have, because it opens the door to make some return on the original investment should a road incident take place, and as we have outlined above, the driver might even end up making more money than what they started with, simply because they had GAP Insurance in place to cover them in the aftermath of their car being written off due to unforeseen circumstances. Ultimately, insurance is generally something of a safety net, an element that will only be activated in a situation that the driver would seek to try and avoid at all costs, and therefore it may never require a claim to be made. And as we have described, there are certain situations where the motorist would be unable to successfully claim on their policy. Nevertheless, our final thoughts are that any driver who knows their stuff and is safe and careful on the road should definitely look at the options available for GAP Insurance, as it makes far more sense to take out a policy on this to cover most scenarios pertaining to than it would to rely solely on the main driving insurance.
You can get all of the facts about GAP insurance pertaining to a car purchase by speaking to us on 01925 599079.
As part of our services, we deliver the car to your premises of choice within the UK. Lately we have delivered cars in most major towns including the Southern cities & midlands: (London, Birmingham, Leicester), Northern cities (Manchester, Liverpool, Sheffield, Leeds, Newcastle), and Scottish cities (Edinburgh, Glasgow).
** As with all financing options, car finance comes with risks. If you cannot keep up with repayments your car is at risk of being repossessed and this will affect your file and lower your credit score.