Is GAP Insurance Worth It And Do I Really Need It?
There are many types of insurance out there, and many we need, but few are required by law, such as car insurance.
If you want to drive a car on the UK’s motorways and roadways, you must have car insurance.
And car insurance is not cheap.
There are many ways to save a “few bob” as they say, but for some, especially younger drivers, car insurance can eat up a lot of their monthly budget.
However, should you have an accident or be in a car crash, having insurance will protect you. It protects you against damage done to someone else’s vehicle or injuries to them, and also damage to your vehicle.
If you buy a new car, then insurance is not just required, but you want to make sure you have the correct amount and type of coverage. After all, it is a new car.
Therein lies the rub, as they say, new cars lose value quickly, they depreciate, or their values drops. In addition, a high percentage of new cars have some form of financing on them. After all, who can afford to splash out £10,000, £15,000, or much more if you want that sporty new model.
It is reported that over 80%, of new cars purchased in the UK are on finance.
That is a high percentage, and one must keep in mind, if the car is in an accident and is a write-off, the value of the new car may have depreciated below the insured value, or what the insurance places as a value on the car.
So what then?
You buy a new car, are involved in an accident, your new car is written-off, given a value of £10,000, but you financed £15,000, with the loan balance standing now at £12,500. What happens with the difference of £2,500 that you still owe?
You still owe it.
That is where GAP or Guaranteed Asset Protection insurances comes into play.
What is GAP Insurance?
Simply put, GAP or guaranteed asset protection insurance, is an insurance policy that will cover and pay the difference between what an insurer may pay for your car if it is stolen or written-off, and what you paid for the car.
The insurance is there to prevent you from losing money out-of-pocket.
GAP insurance will not replace the car, it only covers the “gap” between what an insurer may pay for the value they assign to your car, and what you owe on the car and/or paid for the car.
So do you need GAP insurance?
If you took out a loan to buy a car and financed 100% or a high percentage of the cost of the car, then GAP insurance may be a wise investment.
If you buy a car that depreciates quickly, and have finance on the car, GAP insurance may be a good investment.
You also need to decide which type of GAP insurance is best for you. There are various types of GAP insurance:
* Finance GAP Insurance: This type of policy pays the difference between what an insurer may give you for your car, and what you still owe or have as an outstanding balance on any financing.
* Negative Equity GAP Insurance: If your financing on the new car has any negative equity associated with it, such as you part-exchanged another car and rolled or transferred the older car’s financing into the new loan, this insurance covers that amount as well. Basic Finance GAP insurance does not cover this.
* Return to Invoice: This insurance pays the amount to bring the insurance pay-out to the amount you paid for the vehicle.
* Return to Value: This policy also covers the difference between what the insurer will pay, but tops the amount up to the value of the car when you bought the car. If you have had a car for a few years, this can be a good choice.
* Vehicle Replacement: As it states, this policy covers the difference between what your insurer may pay, and you getting a replacement vehicle.
* Lease GAP Insurance: If your car is a lease and is written-off, this policy covers the remaining time on your contract, and any fees you may be liable for.
So depending on your car and if financed, GAP insurance can be a worthwhile investment.
GAP insurance is sold by most insurance companies, and also by dealerships, however, the cost at a dealership may be considerably higher than if you shop around on your own.