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How does Gap Insurance work?

What is Gap Insurance and is it really worth it?

 

Gap Insurance is a financial top up that bridges the 'gap' in the event of a total loss, between your motor insurance settlement and either the original invoice price (Return to Invoice), the amount outstanding on finance (Finance/Contract Hire), or the cost to replace the vehicle (Vehicle Replacement).

 

Your vehicle is a depreciating asset and is more comparable to a mobile phone rather than a property. Due to depreciation rates, the value that your own motor insurance company pay out in the event of a 'write off' (i.e the vehicle being declared a total loss due to it being stolen, in a flood or an addident etc.) is a fraction of the price you originally paid for the vehicle or agreed to pay on finance. This could then leave you with a shortfall on the finance agreement and therefore left paying for a vehicle you no longer have. 

 

Even if you don't have any outstanding finance on the vehicle, you would still be left with less than the orignal price you paid for the vehicle and therefore losing a lot of the equity you had in the vehicle. This could then force you to take out your next vehicle on a form of finance or use your savings to replace the vehicle. With a form of Gap Insurance, you can protect yourself from any financial implications should the vehicle be declared a total loss, either by clearing the finance off, returning you back up to the original purchase price or topping you up to the cost to replace the vehicle with another 'like for like' model. 

 

Let's explain using an example, you have purchased a brand new Ford Fiesta for £16,000. You have taken it on a 3 year PCP with a final option to own payment of £8,000. You have placed a deposit on the vehicle of £1,000 and agree to pay £195 per month over the three years. 18 months into the agreement, unfortunately the vehicle is stolen and not recovered and therefore your motor insurance company declared the vehicle a total loss. They agree to give you the value of the vehicle at that stage in time which is £10,000. However, the PCP finance company issue you with a settlement figure of £11,490. This means that without a form of Gap protection, you would have to find £1,490 just to clear the finance and walk away. Take a look below to see how Gap Insurance can help you under these circumstances.


Combined Return to Invoice Gap Insurance

This policy under the circumstances used above, will top you up from your motor insurance settlement of £10,000 back up to the original invoice price of £16,000. Within the £16,000 then, we will clear the outstanding finance of £11,490 and the money then left over, the £4,510 will come back to you as a cash settlement. Therefore, rather than you having to pay for a car you no longer have, you walk away with no liability and the equity, deposit and balance left over, all comes back to you.


Finance & Contract Hire Gap Insurance

This is the most basic type of GAP and something that is not usually offered if you ever have the option to own the vehicle. However, if you choose to protect yourself with Finance Gap Insurance, this policy will simply bridge the gap from the £10,000 back up to the outstanding settlement figure of £11,490. This results in you walking away from the vehicle with no outstanding liability, but any deposit or equity you have put towards the vehicle doesn't come back to you. 


Combined Vehicle Replacement Gap Insurance

Similar to the Return to Invoice type of Gap, this policy will take you from the £10,000 that your motor insurance pay out, but rather than getting you back up to the original invoice price you have paid, instead we will take you back up to the cost of a replacement vehicle at that moment in time. Therefore, if another brand new Ford Fiesta at that time is now only available for £17,000, this policy would take you up to the £17,000. Again, within that settlement the finance owing (£11,490) is then cleared and the difference left over, the balance, deposit and equity comes back to you. 


Combined Return to Invoice & Vehicle Replacement Gap

Provided by Total Loss Gap

Rather than you having to choose one of the above, instead we combine the three different types into one all inclusive comprehensive policy. Simply put, should the worst happen and your vehicle is declared a total loss, we will bridge the gap between your own motor insurance settlement and the HIGHER of either, the original invoice price you have paid (Return to Invoice), the cost to replace the vehicle with a 'like for like' vehicle (Vehicle Replacement) or the amount outstanding on finance if applicable. Again, within any settlement the amount owing on the finance is always cleared and the money left over, always comes back to you. 


Is it worth having Gap Insurance if you don't have any finance? 

This is one of the most often asked questions we get. Yes, it is still worth having Gap Insurance even if you don't have any finance attached to the vehicle. The reason being, you will have the ability to protect the 100% equity you have placed in the vehicle or protect your ability of purchasing the same vehicle again, if the vehicle is declared a total loss. As explained above, if you have purchased your vehicle outright, you have the ability to protect the original invoice price you have paid for the vehicle or the cost to replace it, even if that price has increased. 

 

Like any form of insurance, you always have to weigh up the risk against the implications of something happening. Yes, the chances are that your vehicle won't be written off, however, could you afford to face the financial implications should it happen? Because the chances are very slim, the policy premium quoted doesn't have to be a lot of money. If you are wondering how much you should be paying for Gap Insurance? our current average policy price is approximately £99.99 for three years cover. 

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