what is gap insurance and is it really worth it?
gap insurance is a financial supplement that bridges the ‘gap’ in the event of a total loss, between your auto insurance settlement and the original invoice price (invoice return), the amount pending financing (financing/lease), or the cost of replacing the vehicle (replacement of the vehicle).
Your vehicle is a depreciating asset and is more comparable to a mobile phone than property. due to depreciation rates, the value paid by your own auto insurance company in the event of a ‘write-off’ (i.e. the vehicle is declared a total loss due to being stolen, in a flood or accident, etc. .) is a fraction of the price you originally paid for the vehicle or agreed to pay in financing. this could leave you with a shortfall on the financing agreement and therefore stop paying for a vehicle you no longer own.
Even if you don’t have any outstanding financing on the vehicle, you would still be left with less than the original price you paid for the vehicle and therefore lose much of the equity you had in the vehicle. this could force him to take out his next vehicle with a form of financing or use his savings to replace the vehicle. With a form of differential insurance, you can protect yourself from any financial implications should the vehicle be declared a total loss, either by paying off the financing, returning it to the original purchase price, or charging up to the cost to replace it the vehicle with another ‘similar’ model.
let’s explain it with an example: you have bought a new ford fiesta for £16,000. he has taken it on a 3 year pcp with a final £8,000 self pay option. you have put a deposit on the vehicle of £1,000 and agree to pay £195 per month for all three years. 18 months after the settlement, unfortunately the vehicle is stolen and not recovered and therefore your auto insurance company declared the vehicle a total loss. they agree to give you the value of the vehicle at that stage in time which is £10,000. However, the finance company PCP issued him a settlement figure of £11,490. This means that without a form of gap protection, you would have to find £1,490 just to clean up the finances and walk away. Take a look below to see how gap insurance can help you in these circumstances.
combined return-to-invoice insurance
This policy, in the circumstances mentioned above, will top you up from your car insurance settlement of £10,000 up to the original invoice price of £16,000. within £16,000, we will pay off the outstanding £11,490 financing and the remaining £4,510 will be returned to you as a cash settlement. so instead of having to pay for a car you no longer own, you walk away without liability and the principal, deposit, and remaining balance are returned to you.
finance & rent gap insurance contract
This is the most basic type of gap and something not often offered if you ever have the option of owning the vehicle. However, if you choose to protect yourself with financial gap insurance, this policy will simply bridge the gap from the £10,000 backing to the £11,490 pending settlement figure. this results in you walking away from the vehicle with no outstanding liability, but any deposit or equity you have placed on the vehicle is not returned to you.
combined vehicle replacement insurance
Like the return-to-bill gap type, this policy will take away the £10,000 your car insurance pays, but instead of giving you back the original bill price you paid, we’ll take you up to the cost of a replacement vehicle at that time. So if another new Ford Fiesta at the time is now only available for £17,000, this policy would cost you up to £17,000. again, within that agreement, the financial debt (£11,490) is erased and the remaining difference, balance, deposit and principal are returned to you.
combined return to invoice & vehicle replacement gap
provided by the total loss gap
Instead of having to choose one of the above, we combine the three different types into one comprehensive, all-inclusive policy. Simply put, should the worst happen and your vehicle is declared a total loss, we’ll bridge the gap between your own auto insurance payment and the higher of either, the price of the original invoice you paid (return to invoice), the cost to replace the vehicle with a ‘like’ vehicle (vehicle replacement), or the amount outstanding for financing if applicable. again, within any agreement, the amount owed on the financing is always cleared and the remaining money always comes back to you.
Is it worth having differential insurance if you don’t have financing?
This is one of the most frequently asked questions we receive. yes, it’s still worth having gap insurance even if you don’t have any financing attached to the vehicle. The reason is that you will have the ability to protect 100% of the equity you have put into the vehicle or protect your ability to purchase the same vehicle again if the vehicle is declared a total loss. As explained above, if you purchased your vehicle outright, you have the ability to protect the original invoice price you paid for the vehicle or the cost to replace it, even if that price has increased.
Like any form of insurance, you should always weigh the risk against the implications of something happening. yes, your vehicle most likely will not be written off, however, could you afford the financial implications if it did happen? Because the chances are so slim, the quoted policy premium doesn’t have to be a huge amount of money. If you’re wondering how much you should pay for gap insurance? the current average price for our policy is approximately £99.99 for three years of cover.