If you wish to drive on roadways or motorways in the UK, you need car insurance. All vehicles must be insured. If you are not going to be driving on any roadways or motorways, you can apply for a SORN exemption, which is a Statutory Off Road Exemption. This means your vehicle will not be on the roads.
While we need car insurance should we have a crash or a claim, the insurance itself may not always pay out the amount of money we need. Cars and vehicles are depreciating assets, which means they are not always what we think they are worth. And not always worth what we may owe on them.
All cars lose value as we own them and drive them.
Used cars in general now seem to be gaining value, as the demand for them has risen. But overall, cars lose value over time. In some instances a brand new car can loose 20% of its value or worth as you drive it off the dealerships lot! Some brand new cars lose 40% of their value in the first year!
So you have insurance on the car, but what happens if the car is a right-off and the insurer states the car is valued at less than what you may still owe on the financing, or feel the car is worth??
An example may be you have a car you purchased for £20,000, it is involved in a crash, thankfully no one is injured, but the car is now only worth £10,000, and you still owe £13,000.
What to do???
What Is Gap Insurance?
GAP stands for “guaranteed asset protection”, and is an insurance policy to cover the shortfall as explained in the example above, should your car or vehicle be in an accident and be written off.
So basically, if you are in an accident, and the insurer offers £10,000 on a car you still owe £13,000 on finance, the GAP insurance covers the £3,000.
But the question is: Do I Need GAP Insurance?
The answer to this depends on a few questions:
- You financed a car with little or no deposit.
- You bought a car with a low resale value.
- You drove over the expected mileage.
- You financed a car for a long-term.
All these factors reduce the value of the car, which the insurer will review when determining what the value of your car is if it is to be written off. This is where GAP insurance can be a valuable asset to save you out of pocket.