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.
Therefore, “GAP insurance” is used to cover the difference between the actual value of a car at the time of an accident and how much the buyer still has outstanding on their payments. Using the example above, the GAP insurance policy would cover the 8k.
The residual value issue highlighted above is common amongst all makes and models of cars – whilst some types will hold their residual value better than others, all cars will at some point start to drop in value. Whether this begins over time or at the point the car is driven off the forecourt, the need to purchase a GAP insurance policy should always be at the forefront of a purchaser’s mind.
Finally, it should also be noted that it is a “must” that the Gap Insurance coverage begins when you buy your car and take out long term finance on it. Most policies will be based upon the value of the vehicle at the time it’s taken out – therefore if you wait a couple of months before getting covered, you may already have suffered some dropping residual value and still be faced with a large bill to foot 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: cheap car insurance, gap insurance
