Introduction:
When it comes to protecting their vehicles, many UK car owners rely on comprehensive car insurance policies. However, in the unfortunate event of a total loss due to theft or an accident, the payout from a standard car insurance policy may not fully cover the outstanding finance or the original purchase price of the car. This is where Guaranteed Asset Protection (GAP) insurance comes into play, providing valuable financial security to car owners in times of need.
Understanding UK GAP Insurance:
UK GAP insurance is an optional insurance policy designed to bridge the "gap" between the market value of a car and the amount still owed on a finance agreement or the original purchase price of the vehicle. It is particularly relevant for those who have purchased a new car on finance or leased a vehicle. GAP insurance ensures that car owners are not left with a significant financial burden in the event of a total loss.
Difference from Normal Car Insurance:
Conventional car insurance, also known as comprehensive insurance, covers damage to the vehicle, liability for injuries or damages to others, and theft. It provides reimbursement for repairs or the market value of the car if it's written off due to an accident or theft. However, the payout from a standard car insurance policy is based on the car's current market value, which can depreciate significantly over time. On the other hand, GAP insurance covers the difference between the insurance payout and either the outstanding finance on the vehicle or the original purchase price, depending on the policy's terms. Let's understand this with an example:
Example of UK GAP Insurance:
Sarah buys a brand new car for £30,000 and finances it over five years. After two years, her car is stolen, and the insurance company declares it a total loss. At the time of the theft, her comprehensive car insurance company values the car at £18,000 due to depreciation. Without GAP insurance: Sarah's comprehensive insurance will pay her the current market value of the car, which is £18,000. However, she still owes £20,000 on the finance agreement. This means she will need to cover the £2,000 difference from her own pocket, even though her car was stolen. With GAP insurance: If Sarah had purchased GAP insurance, it would cover the £2,000 shortfall, ensuring that her finance agreement is fully settled, and she is not left with any outstanding debt.
Cost Comparison:
The cost of UK GAP insurance can vary based on factors such as the type of coverage, the car's value, and the policy term. On average, a standalone GAP insurance policy might cost around £100 to £300 for three years of coverage. However, some dealerships or insurers offer it as an add-on at the time of car purchase, which could cost more. Compared to standard car insurance, GAP insurance might seem more expensive. However, considering the financial protection it provides in case of a total loss, the added expense is worthwhile for those who want to secure their investment fully.
Conclusion:
UK GAP insurance serves as a valuable safety net for car owners, ensuring they are not left with a financial burden if their car is written off or stolen. While standard car insurance is essential for covering damages and liabilities, GAP insurance complements it by protecting against potential losses due to depreciation. Understanding the difference between the two and considering the financial implications can help car owners make informed decisions and achieve complete peace of mind on the road.