When you’re in the market for car insurance, the chances are that your attention will be drawn to the cheapest policies available.
While this may offer you access to short-term savings, however, it may not adequately protect the full value of your vehicle in instances where it is written off.
This is why you need to select insurance products that offer genuine value, even if this means paying marginally higher premiums in the process. GAP insurance can help you to achieve far greater coverage in some instances, and we’ll explain how in detail below:
Understanding Depreciation and the Importance of GAP Insurance
Even if you have car insurance that is fully comprehensive, it’s still possible to lose money if your brand new vehicle is written off in an accident.
The reason for this is depreciation, as cars begin to lose value from the moment that they’re purchased. This issue is compounded when dealing with new vehicles, as a brand new car loses around 60% on average during a period of three years.
Let’s say that you purchased a new car from £12,000 from a local dealership. If this vehicle was to be written off in three years’ time, insurers would typically pay out at its current value of £4,800 or less.
This amount is largely unfit for purpose, as it’s not enough to invest in a new car or pay off your existing finance deal. This is where GAP insurance can be worth its weight in gold, as it covers the difference between what your insurer pays and the amount that you initially paid for the car.
Now, GAP insurance is not to be recommended if you own older vehicles, as the relative rate of depreciation in this instance is low. However, it’s ideal when dealing with newer cars as the rate of depreciation is considerably higher, or when purchasing high value vehicles that quickly lose their lustre.
There are exceptions to these rules, of course. Any car that is less than 12 months old should be covered by a comprehensive insurance policy, while classic cars have been known to appreciate in value over time.
Conversely, gap insurance may also be suitable if you’re paying a high rate of interest on your car financing agreement. The same principle applies of you made a minimal down payment on your vehicle, or have an agreement that spans up to five years and features relatively small repayments.
The Last Word
Ultimately, GAP insurance is a product that can help you to protect the full value of your vehicle, while preparing for the worst-case scenario in which it is written off.
This type of product also highlights the importance of prioritising value for money, rather than seeking out the cheapest premiums.
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