If you already have a comprehensive car insurance policy, gap insurance may seem like a bit of a waste of money. Don’t discount it too quickly though as it can protect the value of your car if you have an accident or it is stolen – but when is the right time to invest?
What exactly is gap insurance?
Guaranteed asset protection, or gap for short, covers the different between the amount you get paid out from your insurer if your car is written off and what you paid when you bought it. It may be offered to you by the dealership when you purchase your car, but often it’s best to look at specialist providers like ALA for the best quote and cover.
When should you seriously consider gap insurance?
If you’ve purchased your car on finance or used a personal loan from the bank and your car is written off, your car insurance pay-out may not cover the outstanding loan. This is due to a number of factors such as the finance or loan has a high interest rate, the money borrowed is spread over a long period of time such as five years, or you have a balloon payment at the end of the term.
If this happens you could end up with no car and still owe money to your finance company without any spare pennies for a new vehicle. A bit of a pickle if you need to get to and from work every day.
Before you buy your car, look into how quickly it could lose value once you drive it off the forecourt. Some of the fastest depreciating cars can lose up to 60% of their value after only a year with others over 70% after three years. Don’t get caught out with the outstanding monies to cover the loss in value if your car gets written off.
If you have a used car you can still get gap insurance, however it’s less useful as used vehicles depreciate in value at a much slower rate. Check whether it’s worth investing in gap insurance when you buy your used car, you may find that because of its lower value, you may be able to cover the costs.
Speak to a specialist about which works best for you
Whether you decide to go with return to invoice, return to value, vehicle replacement or finance gap insurance, you’ll have a bit more peace of mind and may end up in a better financial situation should you car get written off or stolen.