What is gap insurance and why would I need it?
Guaranteed Asset Protection (Gap) insurance is a policy that covers the difference between what you paid for your car and the amount you would receive from an insurance company if the vehicle were stolen or written off.
How does gap insurance work?
Gap insurance was created because new cars lose their value extremely quickly. According to the AA, a new car will depreciate in value by 40% in the first year and up to 60% over three years on average. 1
For example, if you purchase a car for £10,000, it might cost you £2000 a year in depreciation and be worth around £4000 after three years. On a car worth £50,000, the cost of depreciation will be nearer £10,000 per year.
But if your car is stolen or written off, your insurance policy is only likely to cover you for what the vehicle is worth at that time. As a result, you’re going to get a lot less back than what you paid for your car. However, if you take out gap insurance, then you’re covered.
When gap insurance doesn’t offer significant benefit
Gap insurance can be taken out on both old and new cars. However, as depreciation on an older car will have slowed down, it’s generally not worth taking out this type of policy for an older vehicle.
Also, if you’re happy with a replacement car rather than a brand-new car in the event of something happening, then don’t worry about taking out gap insurance.
Some fully comprehensive car insurance policies offer ‘new car replacement’ for the first 12 months (some even provide it for the first 24 months). If your policy covers you in this way, then there’s no need for gap insurance.
When is gap insurance worth it?
If you’ve just bought an expensive new car, you may want to take out Gap insurance as your vehicle will depreciate in value in the first 12 months. Therefore, you could lose a significant sum if your car is stolen or written off not long after you bought it.
If you’ve taken out a loan to buy the car, through a finance company or other method, you may want the reassurance of having gap insurance. Although your insurance company will only pay out the value of the car at the time, you’ll still have to pay off the full amount of your loan. Gap insurance will help you take care of the loan and purchase a new car.
The choice is yours
As with all insurance policies, it’s about peace of mind and your attitude towards risk.
If you’re not worried by your car losing its value and are happy with the replacement your existing insurance policy will offer, then gap insurance is not necessarily for you.
But if your car is less than a year old and you hate the thought of not being able to reclaim what you paid, then it’s worth taking out this additional insurance.
Do you need advice on damage to your car?
At Smart Bodyshop, our vehicle body repair process starts with an assessment by a qualified in-house Vehicle Damage Assessor using an industry-regulated computer-generated appraisal.
We provide a full quotation of the work required that includes all charges, so you can be sure you’ll receive no unpleasant surprises on completion.
Why not bring your car in for assessment and our team will advise you on the best type of repair for your vehicle?