It can be easy to get caught up in the thrill of buying a new car, and one extra that is often part of a car offer is GAP insurance. Many people are unclear as to the exact nature of GAP insurance, and whether or not they really need it, as on some occasions, it may be viewed as an unwarranted and unnecessary expense. Therefore it vital to fully understand what GAP insurance quotes are actually intended to cover.
Guaranteed Asset Protection
GAP stands for Guaranteed Asset Protection, simply meaning that if your car is written off, you will be able to buy a like for like replacement as when you bought it. This differs from standard car insurance policies as they allow the policyholder to return to the state they were in at the time of the vehicle write-off, while the insurance shortfall can be covered by GAP insurance. Depreciation means that the value of your vehicle falls in comparison to the price you paid for it the longer you have it, and GAP insurance is intended to bridge the difference between the cost of a completely new replacement and the insurance valuation of a vehicle that is no longer new at the time it is written off.
GAP insurance – different types
Although all GAP insurance policies are largely similar, there are many different GAP insurance products on the market that target a number of ownership scenarios. A “return to invoice GAP insurance” policy simply makes up for the shortfall between the amount you originally paid for your vehicle and an insurance write-off payment that has been adjusted for depreciation. “Vehicle replacement GAP insurance” makes up the difference to the real cost of an identical new replacement model, be it higher or lower than the original. “Return to value GAP insurance” is more applicable to second-hand vehicles, making up the difference between the value of the car at the time of purchase and the write-off valuation. Whereas “finance GAP insurance” is intended to cover any outstanding loan amounts if the car is written off, rather than being necessarily tied to the actual purchase value of the vehicle.
Do you really need GAP insurance?
As with all forms of insurance, GAP insurance is basically a gamble, and both the purchaser and the insurance company have to look at the odds for a claim needing to be made and decide on a value to insure against such a risk. Of course, most drivers cannot afford to even risk such a scenario taking place, no matter how unlikely it may seem, and statistics have helped insurance companies to accurately predict the likelihood of their policyholders needing to make claims. This allows them to set premium prices to ensure they do not end up out of pocket. GAP insurance works in the same way, and since they are often signed at the time of purchase, the acceptance of depreciation as inevitable that most car buyers feel over time has often not yet taken root. The best advice is to imagine the value of your vehicle in 12 months time and then consider taking out GAP insurance to see how you would feel about a “like for like” replacement for your current vehicle.