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If you're thinking about buying a vehicle, you may want to consider purchasing Guaranteed Asset Protection (GAP) insurance too.
The moment you buy a vehicle, its value starts to decrease. Different vehicles depreciate at different rates, but whichever make and model you choose, no matter how old the vehicle is, depreciation is likely to knock off a proportion of the original price, particularly during the first few years.
If you are in an accident or your vehicle is stolen, and your motor insurer deems your vehicle a write off, they will compensate you to the amount that your vehicle was worth at the time of the loss - also known as 'market value'. Because of depreciation, this will be lower than the price you paid. GAP insurance can cover you against this, more or less filling the 'gap' between the vehicle's market value (what it would cost if put on the market just before the accident) and the vehicle's value when you purchased it, as well as any outstanding finance debts, if applicable.
Combined RTI GAP insurance pays the difference between the vehicle’s market value at time of loss and the amount you initially paid for the vehicle (the invoice amount), which could cover any outstanding finance you have left to pay. The Return to Invoice element of the cover is provided for up to 3 years and the Finance element for 5 years.
| Written off at 6 months |
Written off at 30 months |
Written off at 42 months |
|
|---|---|---|---|
| The original price you paid | £10,000 | £10,000 | £10,000 |
| Example market value at time of loss | £8,000 | £4,950 | £2,500 |
| Outstanding Finance at time of loss | £9,200 | £5,250 | £3,300 |
| Motor insurer's settlement amount (market value minus excess e.g. £250) |
£7,750 | £4,700 | £2,250 |
| Total shortfall paid by the GAP insurer (difference between original price and market value at time of loss) |
£2,000 | £5,050 | £800 |
| Shortfall paid to finance company (difference between outstanding finance and market value at time of loss) |
£1,200 | £300 | £800 |
| Shortfall paid to you | £800 | £4750 | £0 |
You can buy Finance GAP insurance for vehicles bought under a finance agreement. It pays the difference between the vehicle's market value at time of loss, and the amount outstanding on your finance agreement. The shortfall amount will often be paid directly by the insurer to your finance company.
| Written off at 6 months |
Written off at 30 months |
|
|---|---|---|
| The original price you paid | £10,000 | £10,000 |
| Example market value at time of loss | £8,000 | £4,950 |
| Motor insurer's settlement amount (market value minus excess e.g. £250) |
£7,750 | £4,700 |
| Outstanding Finance at time of loss | £9,200 | £5,250 |
| Shortfall paid by the GAP insurer to you (difference between outstanding finance and market value at time of loss) |
£1,200 | £300 |