One of the products you’ve probably heard of but not had explained properly is Guaranteed Asset Protection (GAP) Insurance. This article will give you all the facts so you can decide if it’s suitable for you or not.
There are 2 keys thing to note;
GAP insurance is an additional insurance policy that in the event of a total loss scenario pays the shortfall between the payout from your motor insurance policy and the amount you paid for the car brand new (including any outstanding finance).
As stated before, a fully comprehensive car insurance policy will only pay out the current value of your car in a total loss scenario. If you have a total loss you will still be liable for any interest owed on the loan, possibly leaving you in a position of negative equity because you owe more than the car is valued. This can occur in a total loss scenario if:
Imagine you’ve just had your car stolen or written off and you still owe money on the car after the motor insurance payout. You can’t purchase a new car as you’re still paying off the loan or saving up to pay the balloon payment. That's where GAP insurance comes in handy.
Buying a car with cash poses less problems as you don’t have to worry about any interest owed or any balloon payment. The only problem is depreciation, cars depreciate the fastest in the first 3 years of ownership, in fact as soon as you drive your car out of the dealership it is considered used and begins to depreciate.
Let's use an example for this:
You bought a brand new car for
£50,000
cash and it was stolen or written off after 3 years. According to the AA, you would only get its current value estimated at £20,000 from your motor insurance.
Clearly this isn’t enough to buy the equivalent brand new car and you would end up asking yourself why you didn’t purchase GAP insurance which would have paid you an additional £30,000 so you could yourself get that new model you’ve had your eye on.
Generally, cash purchasers are aware of the upcoming depreciation and accept it as part of their purchase as they plan to keep the car long-term or gift it to someone they’re close to.
The most expensive place you can purchase GAP insurance is with the car dealership, directly. That is because they know you are functioning on an emotional high and want to capitalise on it. In fact, in 2015 the FCA ruled that car dealerships cannot sell you GAP insurance unless the customer has had 2 clear days breathing space as their practices were harmful to clients.
Now you know why GAP insurance can help you, why not get a quote live on the Forum Insurance website
here and you can be covered in less than 5 minutes!