GAP insurance for new cars
As mentioned, the market value of new cars initially decreases very rapidly after leaving the car dealer. In fact, new cars can lose up to 20% of their market value as soon as you drive them out of the dealership, and they may lose a further 10-20% within the first year. For example, if a customer bought a BMW 3 Series from a dealership for £32,000, it would depreciate on average by nearly £400 per month for the first year – much of this depreciation would occur on the first day.
GAP insurance is, therefore, the most important for new cars because it will cover this large shortfall due to depreciation if you lose your brand new car. GAP insurance is also important for new vehicles when paying for it on finance. At the start of owning a new car, the outstanding finance is likely to be more than the car’s current market value. For this reason, GAP insurance would be necessary to cover this total loss gap.
When to get GAP insurance on a new car
As mentioned, GAP insurance is the most important for new cars since depreciation is the highest, and the amount owed to your finance provider may be higher than the current value of the vehicle due to depreciation. The following are additional reasons why buying GAP insurance on new cars may be especially beneficial:
Your car brand/model depreciates especially quickly –– examples of quickly depreciating cars are the Audi S6, the BMW 8 Series Convertible and the DS 9. With fast-depreciating models, your shortfall in the event of a total loss could be astronomical.
- You have a finance agreement to pay for your car.
You have taken out a large loan –this may mean that the amount you owe to your finance company will be higher than the value of your car for some time, and you may not be able to afford to pay the shortfall if the worst were to happen.
You have put down a small downpayment – this may mean that you will owe more on car finance, which may be higher than the market value of the car even soon after driving away with your new car.
You have an extended repayment window –since you will be paying off your car very slowly, the amount owed on finance will likely be higher than the market value of the vehicle for quite some time. It is only possible to purchase GAP insurance with ALA within the first year of owning your vehicle. , this is also the period that your new car will depreciate the quickest. You should purchase GAP insurance as soon as possible after receiving your new car so that you are covered over the entire period in which your vehicle is depreciating fast or while the amount you owe on finance is its highest.
Choosing a GAP policy for your new car
How you paid for your car or when purchasing GAP insurance will determine which GAP insurance policies best suit you. Common policy types are Back to Invoice, Vehicle Replacement and Contract Hire GAP insurance.
GAP Insurance for over 35 Manufacturers including Audi, BMW and Land Rover
Back to Invoice GAP insurance
This kind of GAP insurance coverage will pay you the shortfall between the payout by your motor insurer and the amount you originally paid or the outstanding finance at the time of the total loss, whichever is higher. This kind of GAP insurance can cover vehicles bought within 180 days of getting your car.
Back to Invoice Plus can be offered if you bought your car within 365 days of purchasing GAP insurance as long as your comprehensive insurance company has coverage on a new-for-old basis for the first 12 months.
Vehicle Replacement GAP insurance
This kind of GAP insurance will pay you the shortfall between the comprehensive car insurance payout and the cost of a new replacement vehicle or the amount owed on finance, whichever is higher. Vehicle Replacement GAP insurance may be ideal for new cars if you bought your new car at a discount or if new car prices have increased since the time your bought your vehicle. Vehicle Replacement Plus can only be offered for cars bought within 90 days of purchasing GAP insurance.
Contract Hire GAP insurance
If you are leasing a new car and it gets written off, you may have outstanding rental payments and also suffer an insurance shortfall. Contract Hire GAP insurance covers the shortfall between the comprehensive car insurance payout and the balance owed to the leasing company. Contract hire Plus is available if you have leased your vehicle within 365 days of purchasing GAP insurance.
Agreed Value GAP insurance
This kind of GAP insurance is not ideal for new cars, but it can be offered as a backup if you didn’t buy GAP insurance within 365 days of receiving your car. Agreed Value GAP insurance will pay you the difference between the comprehensive insurance payout and the market value of your vehicle at the time of purchasing GAP insurance (based on the Glass’s Guide). Due to the high drop in value of new cars, Agreed Value GAP insurance isn’t as beneficial as the other GAP insurance policies; the first year of depreciation (20-40%) would not be covered. It would, however, cover any future depreciation if your car gets written off.
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