The first time you lease or finance a car, you’ll probably be surprised at what a great deal you’ve found.
and then they tell you that the price does not include insurance. or service. or extended warranty. Of course, these are essential, so you’re happy to pay for them.
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Then, just when you think you have everything covered, you find out about Guaranteed Asset Protection Insurance.
“Do I have to have another set of insurance?!” we hear you ask in anguish. actually no, you don’t have to.
However, guaranteed asset protection (or gap) insurance is definitely something you should consider. In this article we are going to explain what gap insurance is, how gap insurance works and if it is worth it.
what is differential insurance?
gap insurance stands for guaranteed asset protection, but is also commonly known as guaranteed protection or guaranteed gap protection.
Basically, it covers the difference between the payment from your insurance company and what the financial company would ask to cover your loss, up to a maximum limit of claims.
This means that if your rental car is ever stolen or canceled, you will not be in a negative equity situation. however, there is a “cap” on how much gap insurance will pay, so as always, it’s important to read the fine print of insurance coverage to ensure you choose the right policy.
what is combined differential insurance?
combined gap goes one step further. Combined differential insurance will not only cover the difference between the insurance payment and the finance settlement, but will also cover the cost up to the original cost of the car.
What this means is that if you have been driving the car for 2 years and have an accident that writes off the vehicle, the combined gap will cover the difference between the amount initially paid > for the vehicle and the insurance payment.
This means that any depreciation value of the car is covered.
However, the combined gap is for customers who finance their vehicle or purchase with cash. if you’re leasing your car, you won’t be eligible for this type of gap coverage.
how does gap insurance work?
You have your car, you love it and it loves you. then, tragically, someone bumps into it, erasing it entirely. this is what you are going to do:
- contact the finance company and ask them for a settlement figure. this is what is left in finance.
- contact the insurance provider and find out how much they will pay.
- if your vehicle is a supercar, for example a ferrari or a lamborghini.
- if the total loss occurred after it was taken or driven without your consent by a family member, spouse or partner.
- if the total loss occurs while being driven with your consent by any person not authorized under the automobile insurance policy.
- if the total loss occurred when the car is unoccupied and left: unlocked; or, with the windows or roof open; or with the keys in (or on) your vehicle.
- any claim of theft or malicious damage that is not accompanied by a valid and verified crime reference number.
- will not replace new with old.
- They will only offer the policy if you are the registered owner/possessor. This means that if you have a rental agreement, you will not be covered. not sure who the registered guardian is? Read our article on who is the registered owner of your rental car here.
- there are strict mileage restrictions.
- if they can’t find a replacement, they’ll automatically return to the market value of the vehicle which won’t be covered by the finance settlement anyway.
- many do not actually offer this policy.
- nothing is set for what happens after the first year ends. This generally means that if you pay off the car after the first year, you won’t have anything to cover the cost.
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Your insurance provider will only pay the market value of the car at the time of the accident or theft. Because cars depreciate relatively quickly, the payment will most likely be less than the value of the car. you are expected to pay that shortfall.
gap insurance will cover that gap.
how does combined gap insurance work?
Okay, let’s say you’ve financed a new car with an invoice value of £20,000. You’ve driven it for the last year, parked it outside of work and haven’t had a care in the world. more.
Unfortunately, in a tragic twist of fate, someone bumps into him. the car is written off and the insurer values it at £14,000. you call your finance house and they tell you your settlement figure is £16,000, which is higher than the amount that your insurer has decided to give you.
Fortunately, it is covered by combined differential insurance.
Combined differential insurance “recharges” its value from £14,000 to the invoice value of £20,000. the combined gap will remove your negative equity and send you a check for the difference, so in this case £4000, which you could use to put as a deposit on your next car .
How long does gap insurance last?
Gap insurance, both combined and otherwise, can be completely customized to your situation.
In general, they will range from 2 to 5 years of coverage and will vary in price based on vehicle values with different benefit payment limits.
As with any insurance, the more expensive the product, the greater the risk for the insurer and the more expensive the policy.
on the other hand, the more expensive the product, the worse you will be if you have an accident/loss and the cheaper it will be to invest in insurance.
as we have said, it is not essential.
what are the advantages of gap insurance?
If your car is written off or stolen, the insurance company will evaluate it using the tools they have available, telling them how much similar vehicles have recently sold for. this is known as the current market value.
You or your insurance company will get a settlement figure from the finance or leasing company that will be calculated by looking at how much is left on your contract, deducting any interest reimbursement, and then adding the expected value of the car at the end of the contract.
gap insurance will cover the risk if the amount you owe is more than what the insurance company will pay up to a maximum limit.
what does gap insurance not cover?
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One of the disadvantages of gap insurance, combined or not, is that it does not cover everything. these are some of the things it does not include;
This is not the complete list and if you would like more information on what gap the insurance does not cover, you can contact us.
what should I look for when choosing gap insurance?
As with most things car-related, it all depends on the situation.
We can’t tell you which cover is good and which isn’t right now. Every lease and financing is different, with different insurers and different car prices, which means different coverages will be needed. however, the advice we will give is:
Always read the fine print. Make sure the policy fits your needs and has a sensible and relevant benefit limit for how much it will pay out in the event of a loss. Any good, credible broker or gap provider should walk you through all aspects of gap insurance so you know you’re getting the right coverage.
Whoever you decide to deal with, make sure they are regulated by the fca or an authorized representative of a compliance company, this means they are reputable. You can check out our article on how to tell if your car broker is trustworthy here.
how much does gap insurance cost?
the differential insurance can vary between £250 and £500. This depends on the type of coverage, the length of coverage, and the benefit cap.
is purchased as a single payment at the beginning of your rental agreementor purchase and is activated on the day of delivery.
There is a 14 day cancellation period where you will get a full refund if you change your mind. most gap policies will also allow you to cancel at any time and receive a proportional return of premium.
If you decide not to at the time of purchase but change your mind, you maypurchase gap coverage for up to60 days after delivery. you can’t buy gap insurance after that.
differential insurance against replacement of a new car
Some people don’t feel the need to purchase differential insurance because their auto insurance policy would replace their vehicle with a new one after a cancellation within the first year.
This is great in theory, but it’s important that you read the terms and conditions very carefully. In my experience, I know that there are clauses in the terms and conditions that mean;
While a new vehicle replacement policy works for some people and is enough coverage for them, that’s not always the case.
It’s entirely your choice whether you choose to purchase gap insurance, combined gap, or a new auto replacement policy, and hopefully we’ve shed more light on the situation.
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