Buy a new or used car and you may be invited to take out GAP insurance alongside the various finance products offered by your local dealership. What is it? And more importantly, is it worth it?
GAP – standing for Guaranteed Asset Protection – insurance is designed to cover the difference between the cost you paid for your car and its current market value. Many people make the mistake of thinking that their standard car insurance will cover the cost of the car at the time of purchase, when in reality your insurer will only pay out the current market value in the case of a write-off or theft. This can lead to a shortfall of many thousands of pounds, particularly if there is a large amount of finance left on the car, or if it has depreciated heavily.
There are a number of different types of GAP insurance:
RTI or BTI (Return to Invoice or Back to Invoice)
Take out an RTI GAP insurance policy and should you lose your car through accident or theft, the insurer will pay the difference between the amount of your settlement claim and the amount you originally paid for the car.
AVG (Agreed Value GAP)
Available for cars bought from private individuals or auction.. It underwrites the Glasses Guide Retail value of the car at the time of purchase and pays back to this value for up to 3 years.
Finance GAP insurance
This covers the amount of any outstanding finance or loan agreements on the car. This is particularly relevant if you lease rather than buy your car outright, as you will still be liable for the cost in the event of loss or theft. This can mean no car and a huge debt to pay.
BTI+ (Back to Invoice+)
This is a combined RTI and Finance GAP policy that will either pay back to the original invoice price or clear the outstanding finance, whichever the greater.
VRI (Vehicle Replacement Insurance)
Under this cover, the insurer will cover the cost of replacing your vehicle with a like-for-like new model, usually even if the retail price has increased since your purchase.
Whether you think GAP insurance is worthwhile expense will depend on whether you are able to cover the difference between any potential settlement and any outstanding finance yourself. It is not likely to be particularly useful is the market value of your car was particularly low at the time of purchase, though some insurance companies are now offering agreed value gap insurance on privately bought second hand cars.
Taking out GAP insurance may also be useful if the car you have bought is likely to depreciate heavily, as this can mean the gap between your cover and liability can increase rapidly over a short period of time.
Before you do sign on the dotted line however, it’s worth checking with your insurer before taking out a separate GAP policy, as many are now offering the service as part of normal car insurance cover.
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