How Depreciation Affects GAP Insurance Claims

 

Depreciation reduces your car’s value from the day you buy it. If your car is written off, your insurer pays only market value. GAP Insurance covers the shortfall created by this depreciation.

 

As the old saying goes, the moment you drive a car out of the showroom, it begins to lose value. This loss of value over time is known as depreciation, and it has a significant impact on what you can expect if your vehicle is declared a total loss.

 

If your car is written off or stolen, your motor insurer will usually only pay the current market value at that time, not what you originally paid.

 

Because new cars can lose between 15–35% of their value in the first year alone, the payout following a write-off can be thousands of pounds less than the invoice price, the finance balance still outstanding, or the equivalent replacement cost.

 

This is where GAP Insurance comes in.

 

GAP is designed to cover the difference between your motor insurer’s settlement and one of the following, depending on the policy type you choose:

 

• Return to Invoice GAP pays the shortfall between the insurer’s payout and the original price you paid.
• Vehicle Replacement GAP pays the difference needed to buy an equivalent replacement vehicle, which may even cost more now than when you first purchased yours.
• Lease & Contract Hire GAP covers any outstanding lease settlement shortfall if the insurer’s payout is not enough to clear your agreement.

 

Depreciation means that the longer you own the car, the wider the GAP can become.

 

For example, a car bought for £30,000 might only be worth £20,000 after two years. If it’s written off at that point, your insurer would only pay £20,000. GAP Insurance could cover the £10,000 difference back to the original invoice price, or more if you had chosen Vehicle Replacement cover, where the replacement cost has increased.

 

Why Depreciation Can Impact a Finance Agreement.

 

For drivers on PCP or HP agreements, depreciation can be a particularly significant concern. Finance balances do not always reduce at the same rate as the car’s value, so it is possible to owe more than the car is worth.

 

GAP Insurance can help protect against a financial shortfall if the vehicle is written off or stolen and declared a total loss by your motor insurer.

 

The speed of depreciation also depends on the type of vehicle. Luxury models, high-mileage cars, and some electric vehicles can lose value more quickly than the average vehicle, making GAP coverage especially important.

 

In short, depreciation is one of the main reasons GAP Insurance exists. By filling the GAP between your insurer’s settlement and what you originally paid, still owe, or need to replace the car, GAP ensures you are not left out of pocket if the worst happens.