Our sister company Insurance4your, who provide private car, van and home insurance, have published an interesting article on GAP insurance.

As many of our business insurance customer have private cars – and indeed might use car finance for their business vehicles and fleets – we thought we would share it with you….

What is GAP insurance and why does it exist?

Before we answer this question, we need to briefly set the scene. Over the last 10 years, buying behaviour of new and nearly new cars has changed.

More than 25% of new car sales are on leased agreements with a finance company – either direct with the vehicle manufacturer (e.g. BMW financial services) or a loan with a bank or building society. Note that his doesn’t take into account cars that are sold when the buyer has borrowed the money from a bank or loan company.

There were 1.94m new cars sold in 2011, 439,000 on business contract hire and 79,000 on personal contract hire or 27% of the total sold were some form of contract hire (either personal or business).

Generally speaking, it has been the availability of finance direct from car dealers that has really seen the growth in leased cars, the advantages for the customer being:

  • Only require a low deposit to get a brand new (or nearly new) car
  • Can spread the payments monthly so better for cash flow
  • Can swop the car halfway through the agreement if the figures stack up
  • Hand the car back at the end of the agreement with no worries about selling it etc for a pre agreed amount GAP Insurance

There are two types of Gap insurance – one which pays the difference between the insurance settlement and any finance owing on the vehicle and the other which pays out the difference between the settlement and the original invoice price of the vehicle.

The most popular is the GAP insurance that pays the difference between the insurance settlement and the finance owing on the vehicle.

If you have an accident that means your vehicle is written off – or it is stolen and never recovered – the insurance company will pay out based on the current value of your vehicle. Unfortuntely, this is often some way short of what you would owe on your finance agreement, especially if it is earlier into the agreement rather than towards the end.

The loan amount outstanding plus interest can often be a few thousand pounds more than the car value, even more if it is an expensive car. So your insurance payout may not cover the total balance owing on the finance agreement or bank loan.

Having a written off car is bad enough, but owing thousands to the finance company despite having an insurance payout is a bitter pill to swallow. GAP insurance is a sensible and cost effective way to cover any shortfall between your insurance payout and loan agreement – starting at only £189 for a policy that covers the duration of your finance agreement.

The second type of GAP insurance works in a similar way, but pays out the difference between your insurance payout and the original invoice price of your vehicle. Simply put, if your car cost £30,000 new and is written off a year later and the payout is £15,000 (with depreciation etc) then this GAP insurance will pay the difference of £15,000 to you.

Below is a side-by-side comparison of the two types of Gap Insurance, written by our Manager of the Personal Lines Insurance department.

Return to Invoice Gap Insurance – If within the period of Insurance a incident which results in the insured vehicle being classed as a total loss by the Motor Insurance Policy insurer, we will pay the financial shortfall between the insured value of the vehicle and the purchase price of the vehicle, as confirmed in the invoice of sale, or the finance settlement figure, whichever is the greater, up to the sum insured. Only one claim can be made under this policy within the Geographical Limits during the period of Insurance.

Finance Gap Insurance – If within the period of Insurance a incident which results in the insured vehicle being classed as a total loss by the Motor Insurance Policy insurer, we will pay the financial shortfall between the insured value of the vehicle and the balance left owing on the finance settlement figure. Only one claim can be made under this policy within the Geographical Limits during the period of Insurance. Interested?

If you’d like to discuss GAP insurance, or set up a policy starting at only £189 for up to 4 years, then please call our team on 0800 630 0466 or email info@insurance4your.co.uk with the email title GAP INSURANCE. However on the other hand, if you wish to visit the insurance4your website, click here.

To find out more about the different County Insurances we offer, there is a wide range under personal and business, call our friendly team on 0330 202 6340. Also you will be able to get a quick quote by clicking here, only takes minutes to fill in a form.