How Does Gap Insurance work?
Gap insurance is a type of vehicle insurance that can help you cover the difference between what your car is worth and what you owe on it. It’s especially valuable if you have an older car or a leased vehicle with a low down payment, since those are the types that tend to depreciate faster than newer vehicles.
What is Gap Insurance
Gap Insurance is a type of car insurance that protects the difference between the market value of your vehicle and what you owe on it. If a lender requires gap insurance as part of their terms, they will pay this amount if your car is stolen or totaled in an accident. This can help to cover the costs of replacing your vehicle when there’s no money left to pay off its remaining balance, which would otherwise be financed through another loan or personal loan with high interest rates (if possible).
Gap insurance isn’t required by law but it’s still recommended by most lenders because it provides additional protection against accidents and theft–two things that can cause serious financial strain for drivers who aren’t prepared for them financially
Is Gap insurance the same as car insurance?
Gap insurance is not car insurance. It’s a separate policy that covers the difference between the amount you owe on your loan and the amount of your vehicle’s value if it’s totaled in an accident.
Gap insurance isn’t required by law, but it can be beneficial if you lease or finance your vehicle. If there were ever an accident where repairs exceeded what was owed on your loan, gap coverage would protect against this common scenario by covering those costs so that they don’t become yours to pay off yourself (and add up quickly).
How does gap insurance work?
Gap insurance is available for all new and used vehicles, it is not mandatory, but it is useful for owners of both new and used vehicles.
When you purchase a car, and insure it, you will insure it for the full purchase price.
However, this does not mean that if your car is a total loss due to theft or an accident which writes it off that this is the amount your insurer will pay out.
Whether new or used, the value of the vehicle will depreciate as soon as it leaves the forecourt – and your insurer will only reimburse your loss for the current value of the car – which can mean a big gap between what you receive as a settlement and what you still owe on your finance agreement.
Gap insurance covers the difference between what was owed on your loan and how much your car insurance company pay you.
This is especially useful for new cars, which tend to depreciate very fast in the first year.
How much cover does Gap Insurance Provide?
This depends on each individual policy and you should enquire as to the best policy to meet your needs.
From our research of the most popular insurance companies that offer GAP, the value of cover varied. For example, Dynamo’s GAP Insurance covers cars up to £80,000, whereas others tended to be a lot less.
Is gap insurance worth it?
Gap insurance is one of those insurance policies that is almost always regretted when not purchased and the ‘it won’t happen to me’ event happens!
It is impossible to predict whether your car will be stolen, or if someone else will drive into your car, making it a total write-off – but when it happens to you, without gap insurance there will almost certainly be a big difference between what you pay and what you owe on your car, and as well as the hassle of finding a new car, the driver is left with an unexpected debt to their finance company which will need to be repaid. It is therefore worth it for most drivers buying a vehicle on finance.
In short, it’s possible to make short term savings by saying ‘no’ to the offer of gap insurance when taking out car finance. However, if you don’t and your vehicle is written off for any reason, you will almost certainly regret it.
