With the release of the new 21’ number plates on 1st March 2021, we look at Guaranteed Asset Protection insurance, or as it’s more commonly known – GAP. What is it, do you need it, and is it just for brand new cars?
What is Guaranteed Asset Protection (or GAP) Insurance?
Vehicles depreciate in value over time and your motor insurer will only ever settle claims on a ‘market value’ basis.
According to reports from the AA, after the first year, the value of your vehicle could depreciate by about 40%, and what’s more, after three years, its value could depreciate up to 60%. To put this into perspective, if a vehicle costs £20,000 when it was new, after 3 years that could drop to £8,000!
Using this example, this would mean either replacing your vehicle using a maximum budget of £8,000, or, if your vehicle was purchased using finance, (and there’s more than £8,000 left to pay on the agreement) you could be left paying a finance agreement for a vehicle that you no longer own.
GAP insurance pays for the difference, or ‘Gap’ between the market value of your vehicle, and either it’s replacement value, invoice value, or value left on the finance agreement. This means that if the worst was to happen, you aren’t left out of pocket when it comes to replacing your vehicle.
What types of GAP Insurance are there?
‘Return to Invoice GAP insurance’ does exactly what it says on the tin. The amount paid is the ‘gap’ between the claim settlement figure, and the amount you paid for the vehicle, rather than the market value. Using our example above, you would receive the £12,000 difference, meaning that you could replace your vehicle with one of equal value to when it was new to you.
‘Finance GAP Insurance’ is your traditional GAP insurance, which would pay out the difference between the amount owed on the finance agreement and the value of the vehicle at the time of the claim. This gives you peace of mind that if a total loss claim occurs, you won’t be left paying for a vehicle you no longer own. The agreement would be settled, and you’re free to start a new finance agreement on a new vehicle.
‘Vehicle Replacement GAP Insurance’ is very similar to Return to Invoice GAP Insurance, except you get back a bit more than the original invoice price, meaning that you can get a brand-new version of your vehicle.
Is GAP Insurance right for me?
Your particular situation is very specific to you, and it may mean that GAP Insurance isn’t right for you. For instance, if you’d be happy receiving the market value for your vehicle in the event of a claim, or if your vehicle is less than 12 months old, and you’re its first registered owner, your motor insurance may already have cover for replacement vehicles, in which case, GAP Insurance isn’t suitable for you.
It’s always best to check first with your insurance broker or insurance company. They will be able to offer you the right insurance for you and advise on any existing covers you may already have.