Is Deferring your gap insurance worth it?

 

Is deferring your Gap Insurance policy a good idea, or is it a risk? 

 

At Total Loss Gap, we have always prided ourselves on presenting the facts and letting policyholders decide. We are also proud to have been what we consider to be instrumental in bringing the ability to defer your gap insurance to the forefront. 

 

One query that we are often asked about is deferring the start date of your new Gap Insurance policy. Here we explain what that means, how it may benefit you, and some of the pitfalls.  

 

What is 'deferred' Gap Insurance?

 

When you 'defer' a Gap Insurance policy, it means that instead of starting your policy right away, you rather fix the start date for a date in the future.

 

For example, you buy a brand new car today and purchase a Gap Insurance policy to cover it. However, you set the start date for precisely a year in the future.

 

Why would you defer a start date on a Gap Insurance policy?

 

The key reason why you would defer a Gap Insurance policy comes with a potential feature your primary motor insurance may offer.

 

Many motor insurers offer 'new car replacement' as part of the standard motor insurance policy. This means that if you have purchased a brand new vehicle, and the car ends up being written off as a total loss, your motor insurer can replace the car with another brand new car.

 

Some stipulations are expected for this feature to be provided. There is usually a maximum fixed term, from when you buy the car, that the motor insurer will offer a new car as a replacement, rather than just the current market value in a settlement. This maximum period is usually one year. Some insurers may offer up to two years, often with further terms to be met.

 

So, if your motor insurer offers a new car replacement for your vehicle, then do you need Gap Insurance running as well? After all, who wants to pay twice and who wants to be double covered.

 

On the face of it, deferring the start date for a year (that is the maximum time we can do so) from your vehicle purchase could save you some money.

 

However, it is not as simple as that.

 

Check the requirements for new for old cover with your motor insurer.

 

There can be several terms and conditions that you must meet if you are looking to claim the new for old cover of your motor insurance. One we have mentioned already, where the vehicle must be less than a year old (or two years old in some cases) for a new replacement to be offered with your motor insurance.

 

Motor insurers can also differ on the terms and conditions to qualify for new for old cover. These can include:

• A new car replacement can only be offered if a replacement is available in the UK within a set time frame.  

• New car replacement is only available if you own the vehicle. If the car is on PCP or a lease, then new for old cover may not apply.

• A new car replacement is only available if you had covered less than a set amount of miles before the claim was made.

• Sometimes insurance companies will revert to market value if the specification or model has changed.

 

Options to defer your Gap Insurance policy?

 

If your motor insurer offers a new vehicle replacement cover with your motor insurance policy, you can consider taking Gap Insurance with a deferred start date. If you defer the start date of your Gap cover, you are relying entirely on your motor insurance to provide you with a brand new vehicle under a new for old cover.

 

What if you do not qualify for a new car replacement with your motor insurer?

 

If you do not qualify for a new replacement vehicle under your motor insurance policy, you need to check what they will cover you for instead.

 

It may be that your motor insurer could pay you to the invoice price you paid for the vehicle. Alternatively, your motor insurer may offer to pay the list price of the new car instead. Either of these may negate the need for a Gap Insurance policy running alongside.

 

However, if your motor insurance only covers the vehicle's current market value, then this could be far less than you first paid for the car. The argument for buying gap insurance to run alongside your motor insurance is far more convincing under these circumstances.

 

Should I take deferred Gap Insurance or not?

 

This is something you will need to decide.

 

If your motor insurer offers a new car replacement cover, then consider deferring your start date for a year. This will only be worthwhile if you think the difference between what your current vehicle is worth and what an alternative would cost to replace it could be significant, rather than taking a financial hit of this size almost immediately from day one.

 

However, you must be sure that you will qualify for a new car replacement in doing so. If you don't buy gap insurance to run alongside, and your car insurer only provides a market value settlement, not a replacement, then you could be seriously out of pocket.

 

The alternative, if you are not convinced your car insurer will provide a 'new for old' brand new replacement, then you can buy gap insurance to run alongside.

 

This means, in the event of a claim, your car insurance does not provide a new replacement car and only pays out the market value of your old one, then you can claim on your Gap policy.

 

Suppose your car insurance does pay out and provides a brand new replacement car, and you have a Gap policy running as well (usually, and certainly with Total Loss Gap cover); you can transfer the remainder of the policy onto your replacement vehicle free of charge.

 

Which Gap policies can have a deferred start date?

 

There is usually a range of Gap policies that you can take as deferred Gap Insurance. These include Return to Invoice Gap Cover and Vehicle Replacement Gap cover.

 

As Total Loss Gap, for example, we can provide a Total Loss Gap 365 Gap policy if:

• You are buying or have bought a brand new vehicle within the last 365 days. You must be the first owner on the V5 logbook.

• In the first year, you can show you have 'new for old replacement cover with your car insurer.

 

If this is the case, and you are happy with your motor insurers new car replacement cover, we can provide 2 to 4 year Total Loss Gap 365 cover, deferred up to 12 months.

 

The takeaway from should you buy deferred Gap Insurance

 

The option to buy deferred Gap Insurance is there for you, should your car insurance give you a new car replacement cover in the first year.

 

However, in choosing a deferred Gap Insurance option, you MUST be happy that your car insurance will provide a new replacement card for you. If you think you may not qualify under every circumstance, then you may want to consider not deferring your Gap Insurance and buying Gap cover to start from 'day one.

 

For more on our deferred Gap Insurance option, please go to Total Loss Gap 365 or give us a ring, and we can chat through your options.