When is the best time to buy a GAP insurance policy?

Cars depreciate rapidly, and if yours is written off, your motor insurer may only pay to the market value of your vehicle at the time of the write-off. This leaves you with a potentially significant shortfall if your car has depreciated a lot or if your loan balance is more than the car is worth at the time. Guaranteed Asset Protection (GAP) insurance covers this shortfall between your comprehensive car insurance payout and the vehicle’s original cost (or the outstanding car finance, whichever is higher).

New cars depreciate the quickest, so purchasing GAP insurance on these vehicles makes sense. However, in this article, we will cover the benefits of GAP insurance for new and used cars and cars bought through VAT-registered as well as private sellers. You will also learn when the best time is to purchase GAP insurance cover so you are not met will a significant financial shortfall in the event of a total loss.

When to get GAP coverage on new cars

The value of new cars can depreciate rapidly after they leave car dealerships – often by up to 20% on the first day and a further 20% in the first year! If your car is written off, your car insurance provider may only pay the car’s market value at the time of the write-off and you then end up with a financial shortfall.

GAP insurance pays the shortfall between the comprehensive car insurance payout and the original value of your vehicle (or the outstanding car finance, whichever is higher). GAP insurance is
especially important for new cars because they depreciate so quickly. Here are some reasons to consider GAP insurance for your new car and avoid a potentially significant financial shortfall:

• You purchased on finance (with a large auto loan or a small down
  payment ) – the balance owed to your finance company will be higher than the car’s value for a longer period.
• You have a model that depreciates quickly – your car insurance payout will match the car’s market value, not its original value.
• Your finance agreement has an extended repayment window – your car’s value may be lower than the amount owed on finance for longer.
• A combination of all of the above – all of these factors increase the risk of owing more on finance than the car is worth at the time of the total loss, increasing your potential financial shortfall.

New cars purchased from a dealership are be eligible for Back to Invoice GAP and Vehicle Replacement ; for leased cars we offer Contract Hire GAP. Time limits apply to these policies; If you meet this and other eligibility requirements, you will be covered for the original amount you paid for your vehicle (Back to Invoice) or the amount owing on finance if this is higher at the time. Vehicle Replacement covers the cost of replacing your vehicle new for old and if you have Contract Hire GAP, you will be covered for any outstanding lease payments and any insurance shortfall.

When to buy GAP insurance on used cars

Used cars are in high demand, and although they do not depreciate as quickly as brand-new cars, GAP insurance can still
protect you from a financial shortfall, especially if you have bought your used car on finance.

If your used car is written off and you have Back to Invoice GAP, your GAP insurance company will cover the shortfall between your comprehensive car insurance payout and the original cost of the vehicle (or the amount owed on finance, whichever is higher). Most GAP insurance cover can be purchased for used cars, including Back to Invoice Plus, Vehicle Replacement Plus You will have 180 and 90 days from receiving your vehicle to when you purchase GAP insurance, respectively.

If you have purchased your used car from a private dealer or have not purchased a GAP insurance policy within 180 days of receiving your vehicle, you will only be able to buy Agreed Value GAP insurance for your used car. For Agreed Value GAP insurance, your GAP insurance provider will base your policy on the current market value of your vehicle at the time of getting GAP coverage (based on the Glass’ Guide ).

When to buy GAP insurance on cars bought from dealers

When purchasing a new car, buying GAP insurance from your dealership can be tempting. The dealership may convince you that your vehicle will depreciate rapidly as soon as you drive it away – this is true, but it doesn’t mean you must purchase GAP insurance coverage from them. In fact, GAP insurance policies from the dealership can cost up to 61% more than an independent GAP insurance company, so it is usually best to look at other options before you collect your car.

As long as you purchase GAP insurance within the relevant time limit, you will be entitled to GAP insurance coverage up to the vehicle’s original price or the replacement cost, depending upon which policy you choose , not its depreciated value. If you purchased your car from a VAT-registered dealer you should be eligible for Back to Invoice Plus or Vehicle Replacement Plus, or Contact Hire Plus for leased vehicles; you have 180 days, 90 days and 365 days respectively, from the time you acquired your vehicle, to purchase GAP insurance.

When to purchase GAP insurance on cars bought from private dealers

If you have purchased your car through a private seller, such as Autrotrader, Gumtree, Ebay , you will unfortunately not be eligible for Back to Invoice Plus or Vehicle Replacement Plus. Instead, you may be able to buy Agreed Value GAP insurance. Agreed Value GAP insurance is based on the car’s market value (based on the Glass’ Guide ) at the time of policy purchase. For this policy, your vehicle must be less than ten years old and have a mileage of less than 100,000.