What is gap insurance and why do we need it?

You have probably never heard of Gap insurance as it is not required under law to enable you to drive a car on UK roads, and you may have never considered how it might help you if your car is for example written off in an accident.

Why would you need more insurance anyway, you paid a good amount of money for a third party fire and theft or a fully comprehensive vehicle insurance policy that covers you for just about any eventuality. That is true fully comp will cover you against just about anything that may happen to your vehicle including if it is stolen or written off in an accident.

Unfortunately, if you have ever had a car written off you will know that there is a problem with even the best fully comp policies let alone third party fire and theft. The difficulties soon become evident after making a claim, for example after a bad smash, the loss assessor will come out from the insurance company and take a look at the damage, he will suck in a lot of air and shake his head a couple of times and make lot of notes.

The reason he is sucking in all this air is that he knows you are going to ask him how much he thinks you will get for your once prized set of wheels. That is the problem with insurance companies as they never pay as much for a stolen or written off vehicle as we think they should.

This applies equally to used and new cars, although the depreciation is more dramatic with new cars. The moment you drive a car away from the showroom it will lose anything between 10-25% of its value. This problem is compounded if your new or used vehicle is being paid for with finance as you may end up still owing a large amount of money to the finance company even after the insurance company has paid out.

How can Gap Insurance help me?

Consider you paid £15,000 for a car 12 months ago, you will assume that you will be getting a “little less’ because you have been driving it for a year. However this is not the way the insurance company thinks about it, there is that big loss of value when you drove the car away from the dealers and you have put 9,000 miles on the clock in a year.

If that wasn’t enough, the vehicle has a pretty big engine and the insurance company thinks bottom has fallen out of the market for that vehicle in the last year. If none of these facts apply to your car don’t worry, the insurance company has a whole list of reasons why your car is not worth what you think its worth.

So now, they offer you £8,000 for your car, nearly half of what you paid for it and there’s no way you can afford to pay out again for the £7,000 difference to get another similar car. This is what Gap Insurance is for; it makes up the difference between what you paid and what you receive from the insurance company. It's a very reasonably priced insurance that will get you back behind the wheel of a similar car without you having to find the extra cash.