What is GAP insurance?
Guaranteed Asset Protection or GAP insurance was introduced in the 1980s. GAP insurance offers people purchasing a new vehicle to cover the rapid depreciation cost of vehicle purchases against the offset of the finance still owed on the vehicle. Policies for GAP insurance are important, as vehicles depreciate rapidly, often losing a significant chunk of their value within the first few years.
There are different types of GAP insurance:
- Return to Invoice (RTI) GAP Insurance – this offers cover for the difference between the original purchase price of the vehicle and the payout from the vehicle insurers.
- Finance GAP Insurance – this offers cover to pay off any outstanding finance or lease payments if the vehicle is deemed a write-off.
- Vehicle Replacement GAP Insurance – this covers the cost of a new like-for-like vehicle if the purchase price has increased since the original vehicle was purchased.
What would happen if I were in a road traffic accident and I don’t GAP insurance?
If you are involved in a road traffic accident, and your vehicle is deemed a write off as a result, the settlement amount you receive from your insurers, is usually calculated on the car's market value at the time of the accident.
As a car's value can depreciate rapidly, this can leave quite a significant gap from the initial price you paid for the vehicle, particularly if you still owe money on a finance agreement.
If you have GAP insurance, any outstanding balance on the agreement can be paid off, partially of fully, by the GAP insurance. However, this depends upon the specifics of your GAP insurance terms.
If you do not have GAP insurance, you could face owing a substantial amount of money on a finance agreement. If your insurer's payout does not cover the remaining balance of your finance or lease agreement, you could be left owing the remaining amount for a car you no longer own, which in turn could leave you unable to afford to replace your vehicle to a similar standard.
GAP insurance can provide financial protection in the event of your vehicle being written off in a road traffic accident and it can be a wise investment for those purchasing new or financed vehicles.
If you have been involved in a road traffic accident, and require legal advice, call us today on 0800 988 8082 or complete our online enquiry form and we will get back to you right away.
