Gap Insurance protects you financially if your car is written off. Gap Insurance has a number of different names on the market as a number of different vehicle manufacturers and online brands try and establish a name for the product that helps to seperate them from the rest.
Shortfall Insurance is a term for Gap Insurance that is used by a number of manufacturers in the UK. Therefore, it is more than likely that if you have purchased a vehicle from the likes of BMW, you will have been offered a form of Shortfall Insurance. We must highlight that we are not associated with BMW or any other manufacturer who also use the term 'shortfall' to describe their Gap Insurance product.
Gap Insurance is a supplementary insurance that runs alongside your own motor insurance to protect you in the event of your car being written off or stolen.
Not many people are aware of the fact that if you do find yourself in the unfortunate position of having your car written off, your own motor insurance will only pay you the value of your vehicle, on that day. Due to depreciation, this is likely to be a significant amount less than your car was originally worth and this is where Gap Insurance comes in.
Depending on which type of Gap Insurance you choose, it will either top up your motor insurance valuation with the amount necessary to take you back to the original price you paid (Return to Invoice Gap Insurance), top up your motor insurance valuation with the amount necessary to be able to purchase the same standard of vehicle again, same age, mileage etc (Vehicle Replacement Gap Insurance) or simply clear any outstanding finance you may have on an agreement (Finance and Contract Hire Gap Insurance).
Which type of Gap Insurance you choose depends on your specific circumstances, for example, how you paid for your vehicle and exactly what you would like to protect. Explore the different levels of cover to ensure that you are not left in a significantly devastating financial situation, if your car is ever written off or stolen.
Vehicle Replacement Gap Insurance will pay the difference between your motor insurance valuation and the amount necessary to be able to purchase the same standard of vehicle again that you drove away from the showroom in.
Vehicle Replacement is designed to protect you from any further increase in your own vehicles invoice price. Vehicles can increase in price due to an upgrade in your particular model or a significant increase into the cost of raw materials.
Due to depreciation your vehicle is likely to decrease in value from the second you drive away from the showroom, industry experts say that the average vehicle depreciates by 50% within the first three years of ownership. This is the amount that you will be awarded by your motor insurance if you are in the unfortunate position of having your car written off or stolen.
If the original model is no longer available, then you will be awarded with the amount necessary, along with your motor insurance valuation, to purchase the superseding model.
Please see our example below to help with your understanding of Vehicle Replacement Gap Insurance.
Frank purchases a Ford Focus for £10,000
Three years later his Ford Focus is stolen.
Frank receives £5,000 from his comprehensive motor insurer, as this was the market value of his Focus on the day it was stolen.
Frank now has a Shortfall of £5,000 from what he originally paid.
His Ford Focus model has also increased in value by £2,000 to £12,000.
This means that to purchase the same vehicle again, Frank now needs £7,000.
With no form of Gap Insurance, Frank will only have the £5,000 motor insurance valuation to clear any outstanding finance or to purchase another vehicle, without using his own savings.
Vehicle Replacement Gap Insurance would top up the £5,000 motor insurance valuation with the £7,000 necessary to be able to purchase the Ford Focus again.
Frank can now use his settlement to clear any outstanding finance if necessary and to purchase another vehicle again if he so wishes.
This has left Frank able to use his money as he wishes and has protected him from a financially devastating situation.
Return to Invoice Gap Insurance pays you the difference between your car's valuation on the day it is written off and the invoice price you paid.
Not many people are aware that if you are in the unfortunate position of having your vehicle written off or stolen, your motor insurance will only award you with the amount of money your car is worth on this day.
Due to depreciation, this amount is likely to be less than your car was originally worth and so you could find yourself significantly out of pocket if the worst was to happen.
Return to Invoice Gap Insurance will top up your motor insurance valuation with the amount necessary to take you back to the original invoice price that you paid for your vehicle.
Please see the example below to help with your understanding of Return to Invoice Gap Insurance
Gary purchases a Renault Clio for £10,000
Three years later, he awakes to find that his Renault Clio is no longer on his driveway
Gary is awarded £5,000 from his motor insurance, as this is the amount his Clio is now worth.
Gary now has a £5,000 shortfall from what he originally paid for his Renault Clio.
Return to Invoice Gap Insurance will top up his motor insurance valuation with the £5,000 to take him back to the £10,000 he originally paid.
Gary is now in the same financial position as he was originally, he can clear any outstanding balance if necessary and then focus on the more important things like looking around for a new car.
Finance and Contract Hire Gap Insurance along with your motor insurance valuation with simply clear any outstanding finance you may have on an agreement.
Unfortunately, if you find yourself in the position of having your car written off or stolen, your finance or contract hire company will still expect the outstanding balance that is owed to them, to be cleared.
You will only be awarded by your motor insurance, the amount that your vehicle is worth on the day it is written off or stolen. Due to depreciation, this is likely to be a lot less than it was originally worth, the average vehicle can lose 50% of it's value within three years.
Please see the example below to help with your understanding of Finance and Contract Hire Gap Insurance.
Joe takes out a three year finance agreement to purchase his Ford Fiesta, which has an invoice price of £11,000.
12 months later, Joe's Ford Fiesta is stolen from outside his home.
Joe's motor insurance pays Joe's finance company with the £7,000 that his car is now valuated at.
There is still an outstanding balance of £5,000 that Joe is now expected to pay.
With no form of Gap protection, Joe will have to use his own savings to pay this £5,000.
Finance and Contract Hire Gap Insurance will simply clear this £5,000 that is left outstanding, leaving Joe in the same financial position as he was in originally, with no financial liability and able to focus on more important things like looking around for a new vehicle.