The Benefits of Gap Insurance

If you have a car loan or lease, you may have heard of gap insurance. Gap insurance, or guaranteed asset protection, is an optional coverage that pays the difference between what your vehicle is worth and how much you owe on your car at the time it’s stolen or totaled.

Gap insurance can be useful in many scenarios, such as when you make a small or no down payment, when you have a long-term loan, when you have negative equity from a previous loan, or when your car depreciates faster than you pay off your loan. In these cases, you may owe more on your car than what it’s worth, which means you could be stuck with a large bill if something happens to your car.

In this article, we will provide you with information and benefits of gap insurance and how to get it. We will explain how gap insurance works, what are the benefits of gap insurance, and how to get gap insurance.

How Gap Insurance Works

When you buy a car, its value starts to drop as soon as you drive it off the lot. This is called depreciation, and it can vary depending on the make, model, year, and condition of your car. However, your car loan or lease balance does not drop as fast as your car’s value. This means that there could be a gap between what your car is worth and what you owe on it.

If your car is totaled or stolen, your car insurance company will pay you the actual cash value (ACV) of your car. The ACV is the market value of your car right before the incident, minus any deductible. However, the ACV may not be enough to cover your loan or lease balance. This means that you will have to pay the difference out of your own pocket. This is called negative equity or being upside down on your loan.

Gap insurance covers this difference between the ACV and the loan balance if your car is totaled or stolen. Gap insurance is usually sold as an add-on to your comprehensive and collision coverage, which are required by most lenders and leasing companies. Gap insurance can help you avoid paying for a car that you no longer have.

Here is an example of how gap insurance works in a claim situation:

• You buy a new car for £25,000 and finance it with a five-year loan with no down payment.
• After two years, you still owe £18,000 on your loan, but your car is worth only £15,000 due to depreciation.
• Your car is totaled in an accident covered by your collision insurance.
• Your collision insurance pays you £15,000, which is the ACV of your car minus a £500 deductible.
• You still owe £3,000 to your lender, which is the gap between the ACV and the loan balance.
• If you have gap insurance, it will pay the £3,000 gap to your lender.
• If you don’t have gap insurance, you will have to pay the £3,000 gap out of your own pocket.

Benefits of Gap Insurance

Gap insurance has many benefits for car owners who owe more on their car than it is worth. Some of the benefits of gap insurance are:

• Protecting you from paying out of pocket for a car you no longer have: Gap insurance can save you from having to pay thousands of pounds for a car that is totaled or stolen. This can help you avoid financial hardship and stress in case of a total loss.
• Saving you from negative equity or being upside down on your loan: Gap insurance can help you clear your loan or lease balance if your car is totaled or stolen. This can help you avoid carrying over negative equity to a new loan or lease if you decide to buy or lease another car.
• Giving you peace of mind and financial security in case of a total loss: Gap insurance can give you peace of mind and financial security in case something happens to your car. You don’t have to worry about paying for a car that you no longer have or being stuck with negative equity.

Gap insurance can be a worthwhile investment for many car owners who owe more on their car than it is worth. According to data from Experian Automotive, the average new car loan in the UK was £23,438 in 2020, with an average term of 69 months. This means that many car owners could be at risk of being upside down on their loan for a long time. Gap insurance can help them avoid this risk and protect their finances.

Here are some testimonials from car owners who benefited from gap insurance:

• “I bought a new car for £30,000 and financed it with a six-year loan. A year later, my car was stolen and never recovered. My insurance company paid me £24,000, which was the value of my car at the time. I still owed £27,000 on my loan, which meant I had a £3,000 gap. Luckily, I had gap insurance that covered the gap and cleared my loan balance. I was able to buy another car without any negative equity.” - Sarah, 35
• “I leased a new car for three years with a monthly payment of £300. After two years, I got into an accident that totaled my car. My insurance company paid £18,000 to my leasing company, which was the value of my car minus a £500 deductible. However, I still had to pay £6,000 to my leasing company, which was the difference between the value of my car and the remaining lease payments. Fortunately, I had gap insurance that paid the £6,000 difference and ended my lease. I was able to lease another car without any extra charges.” - James, 40

How to Get Gap Insurance

If you want to get gap insurance for your car, there are several factors to consider, such as:

• The cost and availability of gap insurance from different sources: Gap insurance can be purchased from different sources, such as your lender, dealer, or insurer. The cost and availability of gap insurance may vary depending on the source. Generally, gap insurance is cheaper and more widely available from insurers than from lenders or dealers. However, some insurers may only offer gap insurance for new cars or within a certain time frame after purchase.
• The coverage limits and exclusions of gap insurance from different sources: Gap insurance may have different coverage limits and exclusions depending on the source. For example, some gap insurance policies may cover the total loan balance, including negative equity rolled into your new loan. Others may only cover up to a certain percentage or amount of the gap. Some gap insurance policies may also exclude certain situations or events that can cause a total loss, such as vandalism, fire, or flood.
• The cancellation and refund policies of gap insurance from different sources: Gap insurance may have different cancellation and refund policies depending on the source. For example, some gap insurance policies may allow you to cancel at any time and get a prorated refund based on the unused portion of your policy. Others may charge you a cancellation fee or not offer any refund at all.

Here are some tips and recommendations on how to find the best gap insurance for your situation:

• Shop around and compare quotes from different sources: One of the best ways to find the best gap insurance for your situation is to shop around and compare quotes from different sources. You can use online tools, such as comparison websites or brokers, to compare rates and coverages from multiple sources in one place. You can also ask for recommendations from your friends, family, or colleagues who have experience with gap insurance.
• Choose the right coverage level and amount for your needs and preferences: Another way to find the best gap insurance for your situation is to choose the right coverage level and amount for your needs and preferences. You can choose from different types of gap insurance, such as finance gap insurance, return to invoice gap insurance, or vehicle replacement gap insurance, depending on how much you want to cover and how much you want to pay. You can also choose the amount of gap insurance that matches your loan or lease balance and your car’s value.

• Check the terms and conditions of your gap insurance policy: Another way to find the best gap insurance for your situation is to check the terms and conditions of your gap insurance policy. You should read the fine print and understand the coverage limits, exclusions, deductibles, cancellation and refund policies, and claim procedures of your gap insurance policy. You should also check the reviews and ratings of your gap insurance provider and make sure they are reputable and reliable.

Conclusion

Gap insurance is an optional coverage that pays the difference between what your vehicle is worth and how much you owe on your car at the time it’s stolen or totaled. Gap insurance can be beneficial for car owners who owe more on their car than it is worth, as it can protect them from paying out of pocket for a car they no longer have, save them from negative equity or being upside down on their loan, and give them peace of mind and financial security in case of a total loss.

In this article, we have provided you with information and benefits of gap insurance and how to get it. We have explained how gap insurance works, what are the benefits of gap insurance, and how to get gap insurance.

Having gap insurance can be a worthwhile investment for many car owners who owe more on their car than it is worth. Whether you decide to buy gap insurance from your lender, dealer, or insurer, make sure to choose the right policy for your situation.

If you need more information or assistance with your gap insurance needs, please contact us today. We are here to help you find the best gap insurance for your car.