| 29th June 2012
General motor insurance will give you peace of mind, in that in the event of an accident or theft, you won't be left completely out of pocket and will still have access to a vehicle.
However, where these policies fall short is when a car is an insurance write-off. This is why Gap insurance is becoming an essential part of insuring your vehicle.
If you are unfortunate enough to have your car written off as a result of a theft or accident, your insurer will often reimburse you for the current value of the car.
The problem is, if you bought your car outright, this number will differ from the amount paid for the car in the first place leaving a shortfall of a few thousand pounds. Gap insurance can protect this shortfall.
Like all insurance, there are differing types available. Here are the most popular types of Gap insurance and what they offer:
Vehicle Replacement Insurance
This type of gap insurance aims to protect against a shortfall in the event of an insurance write off. However, your insurance will only pay you the current value of the vehicle, which is usually significantly lower than the price it was purchased for.
With Vehicle Replacement insurance, your insurers will pay the settlement amount to a nominated dealer to go towards a new vehicle - normally this will be a comparable car with similar specifications to the one it is replacing. The gap insurance will top up the amount to cover the full price of the new car.
The car is less than seven years old.
Insurance can be bought up to four years after the delivery of the vehicle.
Suitable for vehicles that are financed, on a personal loan or owned outright.
Contract Hire Gap Insurance
When you lease a car, should the vehicle be written off you are personally liable for any financial shortfall that may remain. If your leasing contract requires more money than your motor insurer would be wailing to pay upon settlement, Contract Hire Gap insurance would pay this on your behalf.
Available for vehicle arrangements only.
Available to companies and private individuals.
Cars can be up to five years old when a policy is taken.
Return to Invoice
Return to Invoice is the most common type of gap insurance. They simply intend to pay the difference between the market value of your written-off vehicle given from your insurer, and the original invoice for the vehicle.
Some policies have a cap on how much you can be compensated.
These policies may exclude some vehicles if they have a particularly high value.
It is not uncommon for a policy to carry a glass guide value range instead of the actual amount paid for the vehicle.
This blog was written by Simon England, managing director of ALA, who provide GAP insurance for car, van and motorcycle owners.
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