Do you know what you’re entitled to if you are in the unfortunate position of having your vehicle declared a write-off by your insurer? You may think your comprehensive insurance policy would protect you in the event of a write-off. The reality, however, is that it usually only covers up to the market value of the vehicle at that point in time.
In three years most vehicles will lose around 50% of their value from brand new, which can result in a substantial loss. If you pay £30,000 for your vehicle and it is written off, a payment of just £15,000 from your insurer would leave you with a huge financial shortfall. Add to this the possibility you have taken the vehicle on finance. If the amount outstanding is more than your insurer’s settlement, you could be left having to cover anything extra from your own pocket. This is all before you even think about replacing your car! Fortunately it doesn’t always have to be this way. You do have the option of purchasing Guaranteed Asset Protection insurance – more commonly known as GAP insurance – which will cover you for financial loss in the event of a write off.
Which GAP insurance policy is best for me?
There are different ways to purchase a GAP insurance policy, depending on your individual circumstances and the type of policy you are eligible for. The most popular policies are Back to Invoice, Vehicle Replacement and Contract Hire.
Return to Invoice
This policy works best when your vehicle is less than 10 years old and you’ve owned it for less than 180 days. If your vehicle gets written off, this policy will cover the difference between your comprehensive insurer’s settlement figure and the original invoice price you paid for the vehicle.
You could be considering this policy if your vehicle is less than seven years old and has less than 80,000 miles on the clock. However, you can only get this type of cover if you’ve owned your vehicle for less than 90 days. If you are unlucky enough and your vehicle is declared a total loss, this policy will pay the difference between your comprehensive insurer’s settlement figure and either:
- The cost of a new-for-old replacement if you bought your vehicle brand new
- The cost of a vehicle of a similar age to the one you originally bought
This policy usually works only for brand new vehicles delivered within the last 180 days. It applies specifically to Contract Hire or Lease agreements, where there is no option to purchase the vehicle. If the vehicle gets written off, this policy will cover your contractual liability for any outstanding rentals as well as any residual value difference.
Look at the small print
Whilst GAP insurance can be highly beneficial and make thousands of pounds’ difference if you are involved in a write off, not all policies are equal. It pays to look at the small print of the policies so that you know what you’re getting for your money.
Don’t pay over the odds
Most people become aware of GAP insurance when they go to a dealership to buy a new vehicle. However, there are many third party gap insurance providers out there and it’s always worth shopping around for the best value for money. A quick look online will give you a good overview of what is available. You should also try not to be tempted into buying the cheapest policy available as it can have hidden clauses and restrictions. Always look for the best value policy at a reasonable price.
Avoid market value and Glass’s Guide clauses
These clauses limit how much GAP settlement you receive where your insurer settles at less than Glass’s Guide retail value of the vehicle at the time of the write off. This can leave you with a shortfall despite buying an insurance policy to prevent such an outcome. There are only a few providers that exclude these clauses and simply pay the difference between your insurance company’s settlement and the original price you paid for your vehicle. Hence, worth researching your options!
Circumstances can change and you may decide to change your vehicle sooner than planned. A good GAP insurance provider will allow you to transfer your policy. Again be careful – some providers charge admin fees for this meaning you don’t get the full benefit of a transfer.