When you buy a new car, there can be some jitters. What happens if this lavish new vehicle is written off? How can I cover the costs with your standard insurance? Fortunately, you can achieve peace of mind with gap insurance. Below, we explore everything you need to know about gap insurance.
What is gap insurance?
Gap insurance directly revolves around the price you paid for your car. These policies cover the difference between the price you paid for your car and the amount your car insurer would pay out if your car was stolen or written off.
For instance: imagine you bought a car for £20,000. A few months later, the vehicle is stolen or written off. Due to how quickly cars depreciate, your insurer would likely only offer you a smaller sum; perhaps only £15,000. In this situation, you’d be £5000 down and potentially unable to afford a new car, or in debt with car financing. However, if you were lucky enough to have gap insurance, you’d be covered for the gap between your insurer pay-out and the price you paid for the car – essentially the missing £5000 in this scenario.
When is it needed?
Naturally then, gap insurance is most useful when you’ve just bought a new car. This is because of depreciation. The average new vehicle loses 60 per cent of its value within three years. This means that if you have a new car written off, you’re likely to lose a significant amount of money. As such, gap insurance can be a shrewd way of protecting yourself when you make this outlay. Alternatively, gap insurance is essential if you’ve used a loan to finance your car – you don’t want to find yourself in a situation where you’re unable to payoff the loan because the insurer pay-out isn’t enough. Plus, if you’ve taken ownership of the car with a long-term lease, gap insurance can save you from a hefty bill.
Will it replace my car?
Gap insurance won’t directly replace your car, but it will put you in the best financial position to get a replacement. By bridging the gap between your original outlay and the insurance pay-out, you’ll have enough money to pay off a finance arrangement or buy a replacement car.
Ultimately, gap insurance is one of the best ways to protect yourself when you buy a new car. The length of gap insurance policies varies but companies such as Direct Gap offer policy lengths between one and five years. Even if an accident seems unlikely, gap insurance can help you avoid any nasty surprises and can allow you to enjoy your new car with confidence.