Confused about Claim Limits?

One of the main things to cause confusion is the “claim limit” on a GAP policy. Read more to understand why it is so important to get it right.

Published: 13th November 2013

One of the main things to cause confusion is the “claim limit” on a GAP policy.

This is a maximum amount that your policy will pay out. It shouldn’t ever be the full cost of your car as it is always covering the difference between the original invoice price or replacement cost of your car (or clearing the finance if this is the greater amount) and your comprehensive insurer’s settlement.

Numerous online GAP providers have quote pages where the claim limit defaults to £5,000. This has the effect of making a policy look cheap and could possibly encourage customers new to GAP that it is enough. The reality is that in the majority of cases a policy with a £5,000 limit is unlikely to provide you the cover you need in the event of a write off.

When getting an online quotation from ALA we suggest a suitable GAP claim limit. This suggestion is based on how much the car could depreciate by based on average figures over, say, 3 years. This ensures you are protected if your vehicle is written off at the point where it can make the biggest difference to you – the end of the policy. Most cars have lost around 50-60% by their third year, with this increasing again into the fourth year.

As an example, a 3 year Back to Invoice policy on a new car with an invoice price of £20,000 would generate a suggested claim limit of £12,500. The car should only lose approximately half of its value in 3 years according to figures in Glass’s Guide but an additional complication can arise as insurers can often settle at less than the Glass’s Guide Retail Value. If your £20,000 car is written off after 3 years, your insurer may settle at £9,000, despite Glass’s Guide showing a value of £10,000. As our policies do not include a Market Value clause (so we’re not limiting our payout based on Glass’s Guide) we will settle that difference of £11,000.

You can clearly see that in this example a £5000 claim limit would not cover the entire financial shortfall. In fact, unless the car is worth less than £9,000 from brand new a £5,000 limit would be of very little use at all. Given that just one in ten of vehicles covered by ALA policies are worth £9,000 or less, purchasing a policy with a £5,000 limit would be of little worth on the vast majority of vehicles.

We understand that some GAP insurance companies’ quotation pages can be difficult to navigate and it can be daunting trying to select an appropriate claim limit. It is important to ensure you have the right level of cover. ALA are always looking for ways to make quotes easy to obtain and simple to understand but you’ve always got our team of GAP insurance experts on hand if all gets a bit too much!

Click here to read more: Guides ALA Connect.

Published: 13th November 2013
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