Many people ask the question, “What is Gap Insurance?” Well it’s rather simple actually, and it’s a type of insurance that just about anyone with a monthly payment should have, if you don’t have it you are definitely taking a risk without gap insurance for cars.
Whilst many car outlets mis-sell Gap Insurance, it is in fact quite simple in how it works. A person will buy a car for, say, 15k brand new and have payments set up to cover this amount over a period of time. Their comprehensive insurance will cover the car in the case of a write off, but only up to its existing value. Therefore, if the car suffers from rapidly dropping residual values, the owner will be left with quite a substantial “gap” to pay to ensure the car is fully paid for. A 20k car could be worth 12k within 2 years leaving the owner with a potential shortfall of 8k.
So to answer the question of what ‘Gap’ insurance is, well it is a type of insurance that will cover the difference between the actual value of a vehicle at the time of an accident and how much someone owes for financing at the time of the accident. So take the above example, the ‘Gap’ insurance would pay up to another eight thousand dollars.
The residual value issue can actually cause many car owners a huge headache unless they are fully covered. A large proportion of UK car owners find themselves out of pocket the minute they drive out of the forecourt as they will soon own more on the loan then the car is worth. This isn’t a small occurrence either, virtually every car on the market has a residual value which will drop dramatically in the first few years - therefore as well as shopping around for cars that hold theirs well, being aware of the importance of GAP insurance is imperative.
The final point to note, it is extremely important to purchase your Gap Insurance policy at the same time that you purchase your car and take out finance. The policy will be based on the value of the car at the time it is taken out, not the initial value, therefore if you do suffer from rapidly dropping residual values, a policy taken out six months into the deal could still result in a large payment to be made in the event of an accident.
ALA.co.uk supply Vehicle Replacement Insurance - This product will cover the difference between your motor insurers settlement figure and the cost of buying a brand new vehicle, equivalent to the vehicle you had before. Get a quote and buy online now!
Tags: auto insurance, gap insurance