Mind GAP when buying car
It’s not a compulsory insurance but may be worth considering if you want a brand new replacement
QI’M looking at buying a new car at the moment and one thing all the dealers want to talk to me about is GAP insurance. I don’t really understand what it does, and whether I really need to have it. If I’m being cynical it just seems like another way for dealers to make some money from me since I’m assuming they get paid commission from the insurance companies that arrange the policies. Do you think it’s something that I need to spend money on?
Anon
ASOMETIMES it’s good to maintain a healthy degree of cynicism when you are shopping especially when, as you say, everywhere you turn there seems to be another type of insurance that salesmen are suggesting you buy. And no doubt you already feel that you’re paying enough for the car you are treating yourself to without having to spend even more money, so it’s a good question to ask. The answer is that it depends. On what type of car you are buying, how you are paying for it and what you would like to replace it with if it is stolen or written off in an accident. We all know the value of a new car drops dramatically as soon as you drive it out of the showroom, often by as much as a third in the first few months and GAP insurance, or Guaranteed Asset Protection Insurance to give it its full name, covers the difference between the current market value of your car and the amount you would need to pay to replace it with a brand new model.
It should also cover the amount of money outstanding to the finance company if you owe them more than the payout you are likely to receive from your insurance company.
Sometimes the insurance company payout is less than the amount that you will owe the finance company, depending on the length of time you have had the car, how many miles you have driven in it and what condition it was in.
There are three main type of GAP insurance on the market at the moment:
Vehicle replacement insurance covers the difference between your insurer’s payout and the amount of money you would need to buy a similar vehicle.
Return to Invoice insurance covers the difference between the insurer’s payout and either the price you originally paid or the amount needed to settle your outstanding finance balance – whichever is higher.
Return to Value covers the difference between your insurer’s
payout – based on current value – and the original value, which is calculated from the start date of the policy.
As with all insurance policies that you can buy, the first thing you have to think about is whether you really need it or not.
It’s not a compulsory insurance so you have to look at the cost of the policy and what benefits it will provide you.
If you’re likely to want a brand new replacement if your car is stolen or is a write-off, then GAP insurance is worth considering.
Likewise if you owe money to a finance company it might be worth considering since the claim value should allow you to repay the finance company in full.
If you would be happy with a replacement car that’s not brand new then GAP insurance might not be quite as useful since your insurer will pay for a like-for-like replacement.
Likewise many comprehensive insurance policies will offer a new car replacement on their policies during the first 12 or even 24 months, so you won’t need GAP cover if this is your situation.
You are likely to be offered GAP insurance from the dealer that you are buying your car from but you should shop around and see what else is on the market. It may be that you will find a more competitive policy from an insurance broker or online.
If you find a cheaper deal online than the dealer offers go back and haggle with them.
Some policies will only cover you for when a car is stolen or is declared a total write-off.
Others offer more comprehensive protection, including road traffic accidents plus fire and theft so it’s really important to read the small print before signing on the dotted line.
If you’re shopping around for providers, it also pays to check the maximum claim limit which is available as this can vary from one company to another.