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What does GAP (Guaranteed Asset Protection) Insurance Cover?
When you get involved in an accident and your vehicle or bike becomes a write-off. If you are not properly insured, you might find yourself in a dicey situation.
GAP insurance is what you need to prevent a financial meltdown. Not only do you prevent losing money on your asset, you are actually getting the full value of your car or bike. Guaranteed Asset Protection, as the name implies, gives you a guaranteed protection on your asset.
Compare Guaranteed Asset Protection insurance quotes online so that if that accident occurs, you can get back the real cost of the car which your insurance might not be able to cover. It covers the difference between the original amount you got the car and the amount your insurance pays out based on the car’s value at the time of the incidence. Basically, Guaranteed Asset Protection insurance helps you replace your car without you having to find additional funds.
Gap Insurance FAQs
What is GAP insurance?
Gap insurance, short for Guaranteed Asset Protection insurance, is a type of insurance that covers the financial “gap” between the amount you owe on a car finance agreement and the actual cash value (ACV) of your vehicle. It is designed to protect you from potential financial loss if your car is stolen or declared a total loss (written off) due to an accident or other covered event.
Here’s how it works:
- Depreciation and Market Value: Vehicles typically experience depreciation, which means their value decreases over time. If your car is written off, the insurance company will typically only pay you the current market value of the vehicle at that time, which may be lower than what you owe on your finance agreement.
- The “Gap” and Coverage: The “gap” refers to the difference between what you owe on your car finance and the insurance payout. Gap insurance covers this difference, ensuring you’re not left financially responsible for any outstanding finance after your car is written off.
- Types of Gap Insurance: There are different types of gap insurance:
- a) Finance Gap Insurance: This type of gap insurance covers the difference between the insurance payout and the remaining balance on your car finance agreement.
- b) Return to Invoice (RTI) Gap Insurance: RTI gap insurance covers the difference between the insurance payout and the original invoice price you paid for your vehicle.
- c) Vehicle Replacement Gap Insurance: This type of gap insurance covers the difference between the insurance payout and the cost of replacing your vehicle with a new one of the same make and model.
Gap insurance is typically purchased as an additional policy, separate from your standard car insurance. The coverage duration may vary depending on the policy, ranging from one to five years.
It’s important to carefully review the terms and conditions of gap insurance policies, including any limitations or exclusions. Additionally, consider your individual circumstances, such as the value of your car, your finance agreement, and your risk tolerance, to determine if gap insurance is suitable for you.
What does GAP insurance cover you for?
Guaranteed Asset Protection (GAP) insurance is designed to protect you from financial loss in the event your car is stolen or written off (declared a “total loss” by your insurer). When an insurer declares a car as a total loss, they typically pay out the current market value of the car, not the price you paid when you bought it. Because cars depreciate over time, this payout could be less than what you owe on a finance agreement or less than what you originally paid, hence creating a “gap”.
GAP insurance is designed to cover this “gap”. Here’s what it can cover:
- Return to Invoice (RTI) GAP Insurance: This covers the difference between the insurance payout (the current market value) and the amount you paid for the car or any outstanding finance (whichever is greater).
- Vehicle Replacement GAP Insurance: This covers the cost of replacing the car with a new one of the same make, model, and specification, even if this is more than the original purchase price.
- Finance GAP Insurance: This covers the difference between the insurance payout and what you still owe on your car finance agreement.
However, there are limitations to what GAP insurance covers:
- It usually only covers new or nearly new cars: Policies often require that the car be bought from a dealer, be less than a certain age (e.g., less than 7 years old), and have low mileage.
- It doesn’t cover other costs associated with buying a new car, such as your car insurance premium, road tax, or the cost of any accessories fitted after purchase.
- It doesn’t cover any negative equity from a previous car finance agreement that was rolled into the current agreement.
- It may not pay out if your main car insurance provider offers a new car replacement service and replaces your car instead of declaring it a total loss.
It’s important to carefully read the terms and conditions of a GAP insurance policy to understand exactly what is and isn’t covered. Additionally, because some comprehensive car insurance policies offer a new car replacement within the first year or so, you may not need GAP insurance immediately after buying a new car.
How long should I get GAP insurance for?
The length of time you should get Guaranteed Asset Protection (GAP) insurance in the UK depends largely on your individual circumstances, how quickly your vehicle depreciates, and the terms of your finance agreement, if you have one.
A typical policy might run for three or four years, which is the length of many car finance or lease agreements, but policies can range anywhere from 2 to 5 years.
Here are some factors to consider:
- Depreciation: Cars depreciate fastest in the first few years, so that’s when the “gap” between what you paid for your car and its current market value is greatest. As your car gets older, this gap reduces, and so does the need for GAP insurance.
- Finance agreement: If you’ve bought your car on finance, consider the length of your agreement. If you’re in a long-term agreement (e.g., 5 years), you may want GAP insurance for that period.
- New car replacement: Check your car insurance policy to see if it includes new car replacement. Some comprehensive policies will replace a new car that’s written off or stolen within its first year, so you might decide to wait until this coverage expires before taking out GAP insurance.
Remember, it’s important to thoroughly read any insurance policy before you buy it to make sure it meets your needs. The terms and conditions can vary between providers, so make sure you understand exactly what’s covered. Also, keep in mind that you might not need GAP insurance at all if your car insurance payout would be enough to replace your car or pay off your finance agreement.
Is GAP insurance per year?
GAP (Guaranteed Asset Protection) insurance is not typically sold on an annual basis like standard car insurance. Instead, it’s usually sold as a one-off purchase to cover a specified term, which is often the length of a car finance agreement. This term can range anywhere from 2 to 5 years, but 3 or 4 years are typical lengths.
The premium for GAP insurance is usually paid upfront as a lump sum for the entire term of the policy rather than as an annual payment. The cost of the policy will depend on a number of factors, including the value of the car, the length of the policy, and potentially the type of cover chosen.
It’s important to note that while the premium is usually paid upfront, some providers may offer payment plans that allow you to pay in instalments over a period of time. As with any insurance policy, reading the terms and conditions before buying is crucial to ensure it meets your needs.
Can you take GAP insurance out at any time?
It is generally possible to purchase Guaranteed Asset Protection (GAP) insurance at any time, although the specifics may vary by insurer. However, there are often conditions around when you can take out a GAP insurance policy after the purchase of your vehicle.
Many providers will require you to purchase GAP insurance within a certain period of buying your car – often within the first 12 months, although some providers may allow up to two years. Additionally, some providers may stipulate that the car must have been purchased from a VAT-registered dealer and that the car is covered by a comprehensive insurance policy.
Moreover, there may be limitations if you’re buying a used car. For instance, some GAP insurance providers might require that the car is less than a certain age or has done fewer than a certain number of miles at the time of purchase.
If you’re buying GAP insurance sometime after purchasing your vehicle, the cover would be based on the current market value of the car rather than the original purchase price. This could result in a smaller payout in the event of a total loss, as cars depreciate over time.
As with any insurance product, terms and conditions can vary between providers. It’s always important to read the policy documents carefully and check with the insurance provider if you’re unsure about any aspect of the cover.
How long does GAP insurance last?
The term of a Guaranteed Asset Protection (GAP) insurance policy is typically defined at the outset and depends on the terms you agree with the insurance provider. This term is not universally standard and can vary based on your needs and the specifics of your car purchase or finance agreement.
Most commonly, GAP insurance policies are offered for 2 to 5 years. For many people who purchase vehicles using finance agreements, the term of the GAP insurance is often aligned with the length of the finance contract.
It’s important to remember that you’ll usually need to purchase the GAP insurance policy within a certain period of buying your car. Many insurers require you to buy GAP insurance within 12 months of purchasing your vehicle, although some may allow longer.
Is GAP insurance worth it on a new car?
Guaranteed Asset Protection (GAP) insurance is worth it for a new car, depends on your personal circumstances and how you’ve financed your vehicle.
GAP insurance covers the difference between the market value of your car at the time it’s written off or stolen and either the amount you originally paid for it or the amount you still owe on it, depending on the policy. New cars depreciate quickly, often losing more than half their value within the first three years. So if your car is written off or stolen during this time, you could find yourself significantly out of pocket without GAP insurance, particularly if you bought the car with a finance agreement.
Here are some circumstances where GAP insurance may be worth considering:
- You’ve taken out a car finance agreement or lease: If your new car is written off or stolen, you’ll still have to settle your finance agreement. The payout from your car insurance might not cover what you owe, particularly as cars depreciate fastest in the first few years.
- You’ve bought a brand new car: New cars depreciate quickly, so the “gap” between what you paid and the car’s market value can be significant, especially in the first few years.
- You want peace of mind: If you’re concerned about the financial impact of your car being written off or stolen, GAP insurance could give you peace of mind.
However, GAP insurance isn’t for everyone. Here are some reasons you might decide not to get it:
- Your car insurance includes new car replacement: Some comprehensive car insurance policies offer new car replacements for cars that are less than 12 months old, which could negate the need for GAP insurance in the first year.
- You could afford to make up the ‘gap’ yourself: If you could afford to cover the difference between your car’s market value and what you paid for it or what you owe on it, you might decide you don’t need the GAP insurance.
- You’re not concerned about depreciation: If you plan to keep the car for a long time, you might decide that the cost of GAP insurance isn’t worth it.
Before you buy GAP insurance, it’s worth checking what’s included in your car insurance policy and understanding the terms of your car finance agreement. Consider getting advice from an independent financial advisor if you’re unsure. And remember, if you decide to buy GAP insurance, you don’t have to buy it from your car dealer – you can shop around to find the best deal.
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