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Gap Insurance - What, why, when?

Updated 28th March 2018

 

Gap Insurance (or Guaranteed Asset Protection to give it it's grand title) is an insurance policy that can cover an element of the depreciation in value of a vehicle in the event that the vehicle is 'written off' following a fire, theft or accident by a motor insurance company.

 

There are different area's of financial loss you may want to cover; if you have a lease you may want to ensure you can cover your lease settlement or if you bought the vehicle outright you might want to ensure you can recover all your money back. This guide will help you understand your options, the risks that Gap Insurance can cover and what options Shortfall.co.uk can offer to you.

 

Which Gap Insurance?

 

 

 

 

There are different kinds of Gap Insurance, and these will protect you in different ways. The types we offer at Shortfall.co.uk would be:

 

Combined Return to Invoice Gap - to cover the difference between the motor insurance settlement and the higher of either the original invoice price you paid or the outstanding finance settlement.

 

Vehicle Replacement Gap - to cover the difference between the motor insurance settlement and the higher of either the replacement cost of the equivalent vehicle to the one you first purchased.

 

For example, if the original vehicle was brand new then another brand new one matching all factory options), the original invoice price you first paid or the outstanding finance settlement at the time of claim.

 

Contract Hire/Lease Gap - to cover the difference between the motor insurers settlement and the outstanding lease settlement at point of loss. Also available, as an additional option, you may cover your Advanced Rental (up to 6 payments capped at a maximum of £2000) for an extra premium.

 

Agreed Value Gap - to cover the difference between the motor insurers settlement and the Agreed Value (based on 105% of Glass Guide Retail Valuation) on the day you buy the policy. This policy is not something that is offered on new car purchases. It is available when you have owned the vehicle more than 180 days and you want to protect the current value of the car on the day of policy purchase.

 

 

Why Gap Insurance?

 

 

Gap Insurance is an insurance policy that has come about because of three factors; vehicle depreciation, the chance that your vehicle may end up as a 'write off' and the limitations of a typical fully comprehensive motor insurance policy.

 

You may well find a situation where your vehicle is involved in an incident that results in your motor insurer declaring the vehicle a 'total loss', and your motor insurance only pays the market value of the vehicle at the time of claim. This is where Gap Insurance can cover your financial loss.

 

First, lets look at the factors that make Gap Insurance a sensible option to consider.

 

 

Vehicle Depreciation2018 biggest depreciating cars UK

 

 

It is a fact of life that the vast majority of motor vehicles lose value over time.

 

According to experts at the likes of the AA and WhatCar? you can see over 80% depreciation in a new cars' value in the first three years of its life.

 

So to put some figures to that, in the recent Whatcar? report on the highest depreciating cars of 2018, the Renault Zoe is indicated to fall from £29,020 to just £5,100 in three years.

 

That is quite some statistic!

 

Of course not all vehicles will lose value so quickly but if you Whatcar? have suggested that even the slowest depreciating cars may lose around 60% of their original value in 3 years.

 

 

Vehicle 'write off' rate

 

 

A vehicle can be declared a 'write off' for a number of reasons. These may include accident, theft or fire.

 

So what are your chances of your vehicle becoming a 'statistic'? To be fair with over 30 million vehicles on the UK roads you would be pretty unlucky to have yours written off.

 

However you may want to consider some of the latest headlines, reports and data from industry experts including:

 

 

 

 

What are the chances that you become part of these statistics?

 

 

Limitations of a fully comprehensive motor insurance policy

 

 

A typical fully comprehensive motor insurance policy is designed to cover you against the costs of accidents, theft, fire, flood etc. This means that can cover the cost of repairs to your vehicle, following an accident for example, to put it back to the same condition it was before the accident. However, if the motor insurer deems the cost of any claim to be 'beyond economic repair' (this could be where a vehicle has £10,000 worth of repairs but may only be worth £7,000 at that time) then the insurer may opt to 'write off' the vehicle as an economic loss and instead of repairing or replacing the vehicle they will pay you the 'market value' of the vehicle in settlement.

 

The 'market value' is the price it would cost you to replace the vehicle, from a motor dealers forecourt at the time of claim, with the equivalent vehicle. This equivalent vehicle would be the same age and mileage as yours was at the time of claim.

 

Here lays the first limitation of fully comprehensive motor insurance. In only getting the 'market value' back you would be getting back far less, in most cases, than the value of vehicle at the time you first purchased it.

 

 

So how much is the 'market value'?what is market value of a car

 

 

The market value of your vehicle will be calculated on the vehicle age, mileage and condition at the time you make your claim. Based on the data provided by the likes of the AA and Whatcar? above the market value could be significantly less than the price you originally paid. This is especially the case if you bought the vehicle brand new.

 

The example we can show you is of a Volkswagen Golf GTD DSG that was bought in 2015. Around two and a half years later, with only a fairly average mileage and in good condition, this desireable model has still lost nearly 45% of its original value, with a 'market value' of £16,500 to replace it now (March 2018).

 

Remember the 'market value' is the price that the fully comprehensive motor insurance is likely to offer you if they decide to 'write off' your vehicle after an accident, fire or theft in lieu of repairing or replacing it.

 

Given that nearly all vehicles lose value, and 'market value' settlement often means you have suffered a significant financial loss from the price your originally paid.

 

GAP INSURANCE CAN HELP PROTECT AGAINST FINANCIAL LOSS IN THE UNEXPECTED CIRCUMSTANCE WHERE YOU VEHICLE IS INVOLVED IN AN INCIDENT THAT RESULTS IN YOUR MOTOR INSURER DECLARING A TOTAL LOSS AND MAKING A MARKET VALUE SETTLEMENT TO YOU

 

 

When do you buy Gap Insurance?

 

 

If you are reading this then it is probably because you are in the process of buying a vehicle from a motor dealer and they have spoken to you about Gap Insurance. This is by far and away the most common time that a Gap Insurance policy is bought.

 

However it is not the only time you can buy Gap Insurance. Generally speaking most Gap Insurance providers allow you a window of opportunity to buy cover. With Shortfall.co.uk products this is 180 days from the vehicle purchase (except Agreed Value Gap). Some providers you have a shorter period, particularly the dealer offered products, that may be 30-90 days from vehicle purchase.

 

You will normally find that the choices become much less if you leave looking for Gap cover for over 365 days from vehicle purchase.

 

 

 

 

What is Gap Insurance?

 

Gap Insurance (or Guaranteed Asset Protection to give it it's grand title) is an insurance policy that can cover an element of the depreciation in value of a vehicle in the event that the vehicle is 'written off' following a fire, theft or accident by a motor insurance company.

 

There are different kinds of Gap Insurance, and these will protect you in different ways.

 

What is Gap Insurance?

A new car may lose between 50-70% of its original value in the first three years

The simple basis of Gap Insurance is that vehicles lose value over a period of time (not many ever increase in value!). If the vehicle is deemed a 'total loss' by your motor insurer then Gap Insurance can protect an aspect of the value you may have lost.

 

For example, a brand new vehicle can typically lose between 50-70% of its original purchase price in even as short a period as three years from purchase. As most comprehensive motor insurance policies only cover the market replacement value at the time of loss then this can mean you stand to lose much of the original value of the vehicle if the vehicle is 'written off'.

 

So to summarise, Gap Insurance can cover you for financial loss, due to the depreciation of your vehicle following a declaration of a 'total loss' by your motor insurer following incidents such as fire, accident or theft.

 

 

 

 

 

Is Gap Insurance worth it?

 

This really is a decision for you, but for the many customers who have claimed on Gap Insurance, it can provide a valuable source to protect their investment.

 

Which Gap Insurance?

 

The types we offer at Shortfall.co.uk would be*:

 

  1. Combined Return to Invoice Gap - to cover the difference between the motor insurance settlement and the higher of either the original invoice price you paid or the outstanding finance settlement.
  2. Vehicle Replacement Gap - to cover the difference between the motor insurance settlement and the higher of either the replacement cost of the equivalent vehicle to the one you first purchased (eg if the original vehicle was brand new then another brand new one matching all factory options), the original invoice price you paid or the outstanding finance settlement.
  3. Agreed Value Gap - to cover the difference between the motor insurer's settlement and the Agreed Value (based on 105% of Glass Guide Retail Valuation) on the day you buy the policy.
  4. Contract Hire Gap - to cover the difference between the motor insurer's settlement and the outstanding lease settlement at the point of loss. Also available, as an additional option, you may cover your Advanced Rental (up to 6 payments capped at a maximum of £2000) for an extra premium.

 

*Information correct for Shortfall Gap Insurance policies purchased from 1st November 2016. Any Shortfall policy purchased prior to that date please refer to your policy wordings.

 

 

 

 

Why buy Gap Insurance?Why buy Gap Insurance?

 

 

If you have a concern that you could see a hole in your finances if your vehicle was written off then it might be worth considering Gap Insurance.

 

Remember that without Gap Insurance any financial losses you may see due to the depreciation of your vehicle, as a result of your vehicle being involved in an incident that leads to it being declared a 'total loss' or 'write off' are unlikely to be met by your motor insurer or a third party insurance.

 

 

Gap Insurance is available for cash purchases, finance and lease vehicles

 

 

A common misconception is that Gap Insurance is only for people who have finance on a vehicle, and of course, the situation where the vehicle is lost and you receive a cheque from your motor insurer that does not meet the settlement on your finance agreement is not something to savour, but Gap Insurance could be applicable for many types of situations.

 

Even a typical 'cash' vehicle purchaser can protect the money they have spent on the vehicle with Gap Insurance. Let's say you purchased a vehicle for £18,000 in 2016 and in 2019 it was stolen, yet you only received £8,000 from your motor insurer. Would you like a 'top up' of £10,000 to give you your total £18,000 back? Gap Insurance could do that for you.

 

For someone with a pure lease on a vehicle (Contract Hire or Lease Hire), where they have an obligation to clear the lease if the vehicle is written off then what may be covered by the motor insurer in a write-off may not be enough to cover the liability of the lease.

 

All of these situations and more may be valid reasons to consider buying Gap Insurance.

 

Is Gap Insurance worth it?

 

 

This is a question everyone will ask if they are considering Gap Insurance for their vehicle. Ultimately it is a decision for you. There are many factors you may want to consider when thinking about Gap cover and these may include:

 

  1. Gap Insurance is only used if the vehicle is a 'write off' following an accident, fire or theft. You cannot claim if your vehicle is repaired by the motor insurer or replaced on a 'new for old' basis.
  2. Generally, all vehicles will lose value over a period of time, and if the motor insurer does write the vehicle off then you are likely to see only a fraction back in settlement compared to what you paid for the vehicle.
  3. Any motor insurers market value settlement may not be sufficient to pay off a lease or finance agreement. Even if you paid cash for the vehicle then you will probably have to add your own funds to the motor insurers settlement if you want the same standard of vehicle as the one you first purchased, eg if the vehicle was originally new then another new vehicle again. 

What is Vehicle Replacement Insurance?

 

Vehicle Replacement Insurance is possibly the most comprehensive level of Gap Insurance you can buy online as unlike other levels of shortfall cover, you are not just protecting a financial amount or even the invoice price instead you are protecting a replacement cost.What is Vehicle Replacement Insurance VRI GAP?

 

Did you know that year on year new vehicle prices increase. Raw materials, labour rates, transportation, fuel cost, and even public opinion all means that chances are just as your vehicle is starting to deprecate just as you drive it out of the showroom the cost of buying another the same age, mileage and specification as yours was on the day that you collected it from your dealership is going up.

 

Simply getting back the full invoice price that you paid for your vehicle is no longer a guarantee to be able to replace your vehicle on a like for like basis. As one customer described Vehicle Replacement Insurance as being “Almost like Return to Invoice Gap Insurance but with an inflation proof aspect built in".

 

Vehicle Replacement Insurance will pay the difference between your vehicles valuation on the day it is written off and the amount of money that you will need to spend to buy another vehicle the same age, mileage and specification as yours was on the day that you collected it.

 

If that vehicle is no longer available then settlement is based on the superseding model.

 

After all after coping with the traumatic event of having your vehicle written off we think that it is really important that you decide how, where and most importantly on what your hard earned money is spent.

What is Return to Invoice Gap Insurance?

 

Not many people are aware of the fact that if you are involved in an accident in which your car is written off or you find yourself the subject of vehicle theft and your car is declared a total loss, then your motor insurer will only pay you with the amount of money your car was worth on the day it was written off. Due to depreciation, the value of your vehicle will begin to drop as soon as you drive it away from the showroom.

 

Return to Invoice Gap Insurance will pay the difference between your vehicles valuation on the day it is written off and the original invoice price that you paid for your vehicle. Essentially, if your vehicle happens to be written off, between your two insurance companies, you will be paid your invoice price back. We must highlight that as of the 1st October 2014, DVLA will automatically refund your Road Fund License back to yourself if indeed your vehicle is declared a total loss.

 

As explained earlier, the idea of Gap Insurance is to return you to the financial position you were in prior to the purchase of the vehicle and that is exactly what Return to Invoice Gap Insurance does. Without Gap Insurance, you would find yourself significantly out of pocket and with no car. If you purchase a Gap insurance policy, you can focus on the more important things like clearing any finance if this is how you acquired your vehicle, getting better or organising a new vehicle.

 

Lets look at an example of how Return to Invoice Gap Insurance works:

 

Lets imagine that you bought a Ford Fiesta Hatchback for £15,845, two years later you wake up to find that your car has been stolen from in front of your house. Your motor insurer declares your car a total loss shortly after. Now, you may not believe that according to whatcar.com's depreciation calculator your vehicle would now be worth £8,274, which is a significant drop in value over these two years. Now this is the amount that would be awarded to you by your motor insurer, essentially leaving you £7,571 out of pocket. This is where Gap insurance comes in. Your Gap insurance would top up the amount awarded by your motor insurance to the amount that you originally paid (less your road fund license).

 

Without Gap Insurance you could find yourself in a financially devastating situation, with only your motor insurance valuation (apart from your own savings) to replace your vehicle, or worse still if you had acquired your car through finance, to clear the outstanding balance. Do not leave yourself exposed, you could literally find yourself thousands of pounds out of pocket. Rely on Gap Insurance, so that if the worst does happen, you have something to lean on, which will literally save you from a possibly catastrophic situation.

What is Contract Hire Gap Insurance and what can it do for you?

 

If you have purchased a vehicle through the form of a finance agreement such as a Contract Hire agreement, then the only Gap Insurance you are eligible for is Contract Hire Gap Insurance.

 

If you were unfortunately involved in an accident in which your car was written off or you woke up one morning to find that your contract hire vehicle had been stolen, you would have some other issues to address than just having no car.

 

Your Contract Hire company will still expect to be paid the outstanding balance that is owed to them, regardless of what kind of traumatic event you have been through. So, as well as having no car, you have an outstanding balance to pay. Unbeknownst to many people, your motor insurer will only pay you the amount that your car was worth on the day it was declared a total loss. Due to depreciation, this is likely to be a significant amount less than what it was originally worth. Unfortunately, it is a fact of life that cars begin to depreciate the second you drive them away from a showroom.

 

Your motor insurance valuation has gone directly to your contract hire company, though there is still an amount outstanding to pay, due to the depreciation of your vehicle. This is where Contract Hire Gap Insurance comes in. Contract Hire Gap Insurance will top up your motor insurance valuation, with the amount necessary to pay your contract hire company the amount that is still outstanding. Leaving you in the same financial situation as before and able to focus on the more important things like acquiring your next vehicle and getting better after the shock of your accident or theft.

 

Lets look at an example:

 

Lets say you acquired a vehicle with an original retail value of £11,605 from a contract hire company and spread the payments over four years. Three years in, you wake up one morning to find that your car has been stolen from your driveway. Your motor insurer declares your car a total loss and pays your contract hire company £5,034, which is the amount your car has now been valuated as. This is not enough to pay the balance that is outstanding to your contract hire company but luckily, you purchased Gap Insurance when you acquired the vehicle.

 

Now, whatever amount is still outstanding to your contract hire company once this £5,034 valuation has been deducted, will be topped up by your gap insurance company. This leaves you completely free of any financial strain and able to focus on the more important things like looking around for a new car. Do not leave yourself exposed, Gap Insurance can literally save you from a financially devastating situation. The more your car depreciates, then the less your motor insurer is going to award you and so Gap Insurance is there for you to fall back on. It could literally be the difference between thousands of pounds. 

Shopping around on the Internet for Gap Insurance may not be the two minute job that you thought it would be.

 

Different suppliers, all promoting their levels of cover, different terms and that is even before you start comparing terms and conditions.

 

For us we will always consider the terms and conditions of your policy to be the single most important aspect, however, we do understand that price has to be a consideration.

 

At Shortfall we think things in black and white, after all there should never be any grey area in any form of insurance, so, with this in mind you will be pleased to know that our policies have a whole host of features.

 

Shortfall Features

 

We do not charge any excess for making a claim and instead pay £750 towards your own motor insurance excess.

 

All factory fitted options and up to £1500 worth of dealer fitted options are covered.

 

We do not have a market value clause limiting the amount that you have paid for your vehicle or the settlement you are paid from your insurance company.

 

All of our Gap Insurance claims teams and administration services are completely UK based.

 

You can transfer your Gap Insurance at any time to another eligible vehicle.

 

You can cancel your Gap Insurance at any time. Within the first thirty days and providing that you have not attempted to make a claim, we can cancel your policy and issue a full refund. Even after this time you can cancel but instead of a full refund it would be pro rata.

 

As always, we are also here to help each and every step of the way. So, why not click for a quotation and compare genuine Gap Insurance policy features as well as price?

Here at Shortfall, we have worked extremely hard to ensure that when you purchase a policy from us for your Vehicle, that our policies are some of the best, if not the best levels of cover that are available in the United Kingdom today. 

 

You have a 30 day cooling off period with every Shortfall policy, during which time you are able to cancel and providing that you have not attempted to make a claim, will receive a full refund. 

 

You have the ability to cancel your Shortfall policy at any time and receive a pro-rata refund, less a £35 cancellation fee that is charged by the underwriters. 

 

All Shortfall policies are backed by the Financial Services Compensation Scheme.

 

The Shortfall claims team is UK based.

 

The Shortfall customer service call centre is completely UK based. 

 

Shortfall Gap, Tyre, Alloy Wheel and Cosmetic repair policies are underwritten by an insurer with an 'A' credit rating and roots going back to 1933.

 

You can transfer your policy at any time to another eligible vehicle, completely free of charge.

 

Shortfall GAP policies pay £750 towards the cost of your own motor insurance excess. 

 

Please Note: For Motorbikes, the excess contribution is only £250 and we do NOT cover any dealer fitted extras.

 

So for genuine, tried and tested, value for money Gap Insurance products, look no further than Shortfall to protect your vehicle.