GAP Insurance is an acronym for Guaranteed Asset Protection Insurance. Gap Insurance is designed to protect you against financial worries, if your vehicle joins the estimated 600,000 vehicles written off in the UK each year. It in theory acts as a supplementary form of insurance and sits alongside your comprehensive insurer.
The three most popula Gap Insurance policy types are: Return to Invoice, Vehicle Replacement and Contract Hire/Finance Gap.
Every driver has different individual needs and that is why there are three different policy types made available to cater for those needs. Below are three examples of Bob, Freddy and Jimmy, all who were protected by one form of Gap Insurance.
- Bob purchases a Volkswagen Beetle for £20,000
- Three years later, it is written off as a result of a motoring accident
- Bob receives £10,000 from his comprehensive insurer, given that this was the market value of his Volkswagen Beetle at the time it was written off
- Bob now has a Shortfall/Gap of £10,000
What policy is best for Bob?
- Freddy purchases a Ford Focus for £10,000
- Three years later, Freddy awakes to find that it has been stolen
- Freddy receives £5,000 from his comprehensive insurer, given that this was the market value of his Volkswagen Beetle at the time it was written off
- Freddy now has a Shortfall/Gap of £5,000
- Freddy is later informed by the Ford dealership that the cost of his Ford Focus has increased by £2,500
- This means that Freddy now has a total Shortfall//Gap of £7,500
What policy is best for Freddy?
- Jimmy takes out a four year finance agreement in order to purchase a Vauxhall Corsa
- It involves set monthly payments of £200
- Two years later, it is written off as a result of a motoring accident
- Jimmy has already paid two years of the agreement, which totals £4,800
- This means that Jimmy may still be liable for the remaining two years of payments, which again totals £4,800
- Jimmy now has a Shortfall/Gap of £4,800
What policy is best for Jimmy?
The majority of UK drivers assume that their comprehensive insurance fully protects their vehicles. This is simply not true. As previously explained, 600,000 vehicles are written off each year in the UK. If this happens to your vehicle, you will only be paid the market value of your vehicle at the time it was written off. The average vehicle depreciate by up to 50%in the first three years. Again another fact UK drivers are simply not aware of.
Bob was protected by Return to Invoice (RTI) Gap Insurance. This means that Bob will be paid the outstanding £10,000 Shortfall/Gap and be returned to the invoice price he originally paid.
Freddy was protected by Vehicle Replacement Gap Insurance. This means that Freddy will be paid the outstanding £7,500 Shortfall/Gap, placing him in the position where he can purchase another Ford Focus if he wishes. The invoice price of a car can increase for a range of reasons, most notably if the car manufacturer introduced an upgraded version of the model.
Jimmy was protected by Contract Hire/Finance Gap Insurance. This means that Jimmy will be paid the remaining £4,800 and be allowed to walk away from the finance agreement a free man, without any financial liabilities.
