If you were ever unfortunate to find that your car has been stolen or written off in an accident, your insurance company will only ever pay out based upon that value of your car at that time.
This, though, may well be less than the remaining figure that you still owe your loan company. Scenarios such as this have brought a type of insurance known as Guaranteed Asset Protection - or GAP insurance - into the market place.
The idea of GAP Insurance is that it will cover the difference between the outstanding amount left to pay on a car at time of claim and the original purchase price. It is important to note that GAP Insurance is in no way an alternative to regular car insurance which you need to legally drive - it is bought in addition to this to cover any amount you have left to pay. It’s definitely worth thinking about when purchasing a new car, because imagine how it would feel if you had your car written off but had to continue to making monthly payments on it?
Return To Invoice (or Return To Value) Insurance is another type of GAP Insurance. An example of this is if you have been paying off your car for, say, 3 years and it’s stolen, you’d normally not be able to get back what you’d already paid off. Return To Invoice will sort out the difference between and the amount the insurance company pays out so none of this is lost. You don’t have to use this to get a new car, but the option is there if needed.
Most motorists are unaware that new car depreciation is one of the highest costs of motoring. From the second that you drive your new car off the forecourt it’s actual value is starting to go down. In this first year it can be by up to 50%. For an older car, this is less of an issue, but imagine if your new car was involved in a theft or accident in it’s first few months of ownership! You would be left massively out of pocket - hence the importance to look at offsetting this with GAP, Return To Value or Return To Invoice policies. As these are all different, make sure you do your research to see which one is best suited to you.
A GAP policy tends to be around 5 years long and covers your car up to the value of 100k. If you prefer, you can get policies that will provide a like for like cover and replace your motor in the event of theft/accident. You do though have to take out such a policy within the first 3 months of purchase whether you have bought the car outright or got it on finance. This policy is known as Vehcile Replacement Insurance (VRI).
Though it’s a new policy, you should also be aware that compulsory FSA regulations apply to all companies who provide GAP cover.
ALA provide all types of GAP car insurance including GAP, VRI and Return To Invoice. Visit their website to find out more about GAP cover and why it is worth it.