An Explanation Of Gap Insurance

The amount of money you will receive from your car insurance company should your car be either written-off or stolen will only be as high as the vehicle's current market value. This, though, may be less than the outstanding amount that you still owe your finance company. Scenarios such as this have brought a type of insurance known as Guaranteed Asset Protection - or gap insurance - into being. A GAP policy covers the difference between your vehicle's market value and the amount you paid for it.

GAP is not a replacement for car insurance, but can cover you for any shortfall that may occur before you have finished paying for your vehicle, even if you have a fully comprehensive policy. It is something well worth considering, especially when buying a new car. Imagine how you would feel if your car was stolen or written-off, but you had to continue making payments towards it.

Gap insurance is also known as Return To Invoice or Return To Value. If you have been paying for your car for, say, two years and it is written off, you would lose the money you had already paid. GAP insurance pays the difference between the purchase price and what your insurers offer you. This means that you do not lose all that money which you have so far paid. Whether or not you choose to put the money towards a new car, it is reassuring to know that you will in fact have this option should your car be deemed a write off.

As soon as you buy a new car its value will fall, often by quite a large amount, often up to 50 per cent of what you paid for it in the first year. For older cars this may not seem like such a large amount; you would be hugely out of pocket, though, if your car was stolen or written-off within a few months of you taking ownership. New car depreciation is in fact the biggest cost of motoring; most people don't realise this. This can be offset by GAP depreciation insurance, Return To Value or Return To Invoice. The various gap products available all differ in the details, so make sure that you seek advice in working out what the differences are if you are unsure of the policy which will best suit your needs.

Generally speaking, gap insurance policies will span a term of about five years, covering a vehicle up to the value of £100,000 or so. There are companies who will provide like-for-like cover for your car, replacing it with the same model should it be written off or stolen. The name for this type of product is Vehicle Replacement Insurance- or VRI. The standard period between buying your car and being able to take out a VRI policy is usually three months. This applies not just to drivers who have bought a car with finance or under a hire purchase agreement but also to those who lease vehicles. Reasurrance for the customer comes in the shape of compulsory FSA registration for all companies which provide gap insurance cover.

Finding out how beneficial gap insurance could be to you is easy. To find your car's depreciation rate, there are many online calculators available that will help you. Make sure to use more than one as the results may differ considerably.

By: Stephanie Andrew

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Stephanie Andrew writes and publishes articles for SEO consultants ePage Solutions whose clients include Future 45 Ltd. - helping UK motorists save money on their gap insurance by buying direct from the insurer.