What is GAP insurance?

Whether you lease a car or are considering entering into a car lease, you may have heard GAP insurance mentioned, but what is it? And how do I know if I need it?

What Is GAP Insurance For?

Imagine this scenario: You have just entered into a new car leasing contract and are enjoying driving your new vehicle. However, disaster strikes and your vehicle is damaged and is classed as a total loss write-off. In this situation, your car does not get fixed and so it is never returned to you. So, what happens now?

In the case of a total loss, you will receive 2 figures. Firstly, your insurance company will give you a total payout based on the market value of your vehicle; this is to cover the cost for the loss of your car. The second figure will come from the finance company with whom your lease is arranged. This will be a settlement figure; the amount you owe them to cover the cost of settling off your financial liability with them..

Due to the way that vehicles depreciate, the figure your insurance company pays for the loss of your car may not be as much as you owe back to your finance company. The gap between the insurance company payout and the settlement figure from the finance company is the figure that the GAP insurance policy will cover you for.

GAP Insurance Example

Your lease car is written off. 

Your Insurance company will pay £8,000 for the loss of your vehicle.

Your finance company give you a settlement figure of £10,000 to clear your finance.

There is a £2,000 'GAP' - this is the money you can claim using your GAP insurance.

You may take our GAP insurance and never have to use it, or you may decide the risk is not enough to pay for GAP insurance then regret it if your vehicle is written off as it will be your responsibility to pay the difference between the insurance company payout and the finance company's settlement figure.

What's Included With GAP Insurance

Many companies provide GAP insurance products. Rivervale’s Insurance Partner is Auto Protect (MBI) Ltd. The following are all included with Auto Protects GAP Policies;

  • Up to 3 monthly rental payments up to £2,500 including VAT towards a replacement vehicle. When you enter into a car finance agreement there is often an initial payment which is higher than the monthly rentals paid. If your lease vehicle is written off, you would need to again pay another initial payment for your next vehicle if you choose to lease again. GAP insurance would pay for this initial payment up to £2,500 so you did not have to find an initial lump sum of money again.
  • Manufacturer fitted extras are covered up to the value of £1,500. If you had extras added to your vehicle, such as a tow bar or roof rails that raise the initial value, these will be covered by GAP insurance.
  • Insurance Excess up to £250 is covered. When you claim on your insurance you are likely to have a voluntary excess payment to make – this payment is covered up to the value of £250 with GAP insurance.
  • Up to £100 road fund licence covered. If the finance agreement you are in means you need to pay for your Road Fund Licence, this will be covered in the event of a total write off up to the value of £100 by GAP insurance.

Conditions Of GAP Insurance

  • For GAP insurance, the driver must have fully comprehensive car insurance.
  • GAP insurance will last for 48 months.
  • Only one claim is allowed during the GAP insurance policy period.
  • If you need to make a claim a claims form must be requested within 90 days of the incident from AutoProtect.
  • If you are making a claim on your GAP insurance you should always seek authorisation from AutoProtect before accepting the value your insurers have placed on your vehicle.

Transferring GAP Insurance

Many insurers now offer a new for old option. If your car is written off and you accept a new car from your insurer there has been no need to use your GAP insurance. In these cases, the policy can be transferred to your new vehicle providing the new car is within the same vehicle price banding as the original vehicle.

To transfer your policy your new vehicle must have been provided by a motor dealer and you must make the policy transfer request within 7 days of the replacement vehicle purchase.

GAP Insurance Exclusions

There are a few exclusions that will affect whether you can make a claim on your GAP insurance policy;

  • If the accident which resulted in your vehicle being written off is due as a result of your drink or drug driving you will not be able to claim using your GAP insurance.
  • If a total loss is the result of theft where the thief had access to your car keys you will not be able to make a claim on your GAP insurance.
  • GAP Insurance will not cover any vehicle which is used as a Taxi, driving school, hire and reward, for any type of racing or competition, vehicles designed to carry more than 8 passengers or any commercial vehicles over 3500kgs.

Cancelling GAP Insurance

If you decide you have made a mistake and would like to cancel your GAP insurance policy you can receive a full refund if you cancel within 30 days. After 30 days, you can still cancel your policy, but the amount refunded to you will be calculated depending on how many complete months there are remaining on the policy.

You cannot cancel your policy if any claim has been made.

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