Why drivers need gap insurance

Gap insurance

If you’ve been driving for any length of time then you no doubt know the value of having car insurance that is suited to your vehicle and your situation. If you’ve bought a new car though, particularly if you’ve done so on finance, it’s worth taking an extra hard look at the type of insurance add-ons you need, paying special attention to ‘gap insurance’.

Gap insurance: what is it?

If you buy a new car for £14,000 and you write it off, have it stolen or similar outside of the period which your insurer will replace it like for like (usually just the first year after the purchase), you could stand to lose out in a big way if you don’t have gap insurance.

This is because the amount that you’re paid out in the event of a claim will usually be the ‘market value’ – what your car is currently worth on the open market – rather than what you actually paid for it originally. Because cars often depreciate in value very quickly these days, the difference between these two figures can be quite large – potentially many thousands of pounds.

Gap insurance, depending on the terms agreed with your insurer, can effectively pay out the difference between the original price tag and the amount that you’re offered for a write-off claim. Particularly handy if you’re hoping to get a new car of a similar standard to the one that you had.

Gap insurance and finance deals

Gap insurance is even more valuable and useful if you bought your car on finance. This is because in a situation in which you write off your car, the amount that you are paid out could fall someway short of the figure that you still owe for the car on finance. In such a situation, you could find that not only are you unable to afford a replacement vehicle, you’ll also have to pay additional money out of your own pocket to settle with the finance company.

Certain types of gap insurance can cover you for this difference between the payout amount and the amount you owe on finance, preventing this rather depressing set of circumstances from ever occurring.

Gap insurance – saving grace

For many motorists, gap insurance can turn a catastrophe into a minor inconvenience. To sum up, having gap insurance can cover you for:

  • The difference between the original cost of the car and the amount of money that your insurer pays out in the event of a write-off
  • The difference between what you’re paid out through your regular car insurance and what you still owe on your finance deal

If you have any further questions about gap insurance or any other motoring insurance add-on, don’t hesitate to get in touch with Park Insurance for a friendly chat.