If you’ve recently bought a new car, or even a second-hand van, you’ll have gone through the process of insuring your exciting new purchase. The main consideration was probably whether to get ‘Third Party, Fire and Theft’ or ‘Fully Comprehensive’. If the vehicle is worth any money at all, you’ve probably gone for comprehensive cover. Great! You’re probably thinking that if the car is written off, you’ll get a good pay out from your insurance. WRONG.
Insurance companies will only pay out the car’s value at the time of total-loss, not what you paid for the car.
If the worst should happen then you should always haggle with the insurance company to get the best price possible. Have a quick look on AutoTrader to see if the settlement offered to you is fair and at market value.
Whatever the insurance company ends up paying you for the car, it will certainly be less than you paid. This can be a problem if the car was bought on finance, or with a personal loan. This is where Gap insurance comes in handy.
Personal Contract Purchase (PCP) is the most common form of car finance at the moment due to the low interest rates and good additional servicing packages. PCP requires a small deposit upfront, low monthly fees and then a large fee at the end of the agreement if you choose to keep the car. Alternatively you can return the car and start again. You are, in effect, renting the car.
If you have a serious incident and your car is written off, you may find the insurance settlement is less than the finance outstanding on the vehicle. In that scenario you’ll either have to keep paying the finance on a car which you no longer have, or stump up some more cash to buy your way out of the agreement.
Gap insurance will cover the gap between your insurance settlement and the remaining finance on the vehicle. Gap insurance is suitable for HP, PCP, Lease and Contract Hire Vehicles. Here’s an example.
A one year old car is written off. The insurance company pays £10,000, but the remaining finance is £12,000. Gap insurance provides £2,000 to make up the difference.
Return to Invoice
Slightly more expensive than gap insurance, “return to invoice” insurance works in the same way, but will make up the difference between the insurance payout and the invoice price of the vehicle when you bought it.
This is more suitable if the vehicle has been bought with cash or a personal loan.
More expensive still, this will pay the difference between the insurance settlement and the cost of purchasing a replacement vehicle.
Things to watch out for and remember
Like with any insurance products, there are things to watch out for:
- Claim limit – some policies may have a claim limit. Most don’t but do watch out. Having a claim limit slightly defeats the point of the policy doesn’t it?
- Excess cover - some policies may cover your insurance excess – very handy.
- Making a claim – read the small print about what to do if you need to make a claim. Your gap insurance company will dictate how much you should settle your car insurance claim for. Ignoring this will invalidate your gap insurance.
Where to buy?
PayingTooMuch.com does not currently sell gap insurance online. Call our team on 01243 219300 who will be able to assist over the phone.
AVOID BUYING GAP INSURANCE FROM A DEALER. You may experience a hard sell from your car dealer when buying your new vehicle. You will almost certainly find that gap insurance online is far cheaper than the prices quoted at your dealership.