Gap insurance

IamNotAllowedToUseMyName

Gap insurance: take a look at the ratio of premium to likely payout. Like all dubious covers you are paying a lot of money for an unlikely event.

There is one scenario where gap insurance makes sense and that is where you have a lease or very high value loan where actually you can't really afford what you've bought.

If you lease a car and write it off after 6 months, then you will have paid say 15% of your lease, but the new car's market value has gone down 25%. You then are liable for 85% of the lease and you only have 75% of the value - you could be out several thousand pounds.

However, many insurers have a new car, full value insurance cover for the first year - if you don't then switch to someone you do, even if the premium is a little bit more because it saves you the need for gap insurance. In that case the gap insurance is poorer value as your payments catch up with the value of the car, and you are only covering 2 years rather than 3.

Think of it like appliance insurance. We took a decision a long time ago never to cover appliances and with TV, freezer, washing machine, computers and so on, you have a lot of high cost insurance policies that the hundreds of pounds not paid out go into the repairs pot.

So, decide on the likelihood of a write off rather than a repair - and in the case of a write off, could you afford to cover the gap at the worst case point in the cover?

When we had it offered to us on a second hand car worth about £20k, the cost was £300. What is the gap going to be? In our case we took a £7k loan as there was a manufacturer promotion offering a significant discount (less than the interest charge if we kept the loan and we can cancel if we want). To me that sounded like a 10% charge over the three years, probably more. We haven't had a repair accident in over 10 years. So the chances of a write-off accident are very low, so that is a 10% charge for something that we probably are not going to pay out. Compare with car insurance, we pay less than £300 a year for the full cover which is not only the value of the car, but the cost of other damage too, that is more like a 1% or less charge for a more likely payout.

Yes, it's PPI.

Hern

I wouldn't normally revive an old thread but my attention has been directed to this by a friend who, like myself, has very recently gone the Personal Contract route to buy a new car. My friend remembered "reading something about GAP" on MSE, hence this post.

It does seem to me that there's some confusion as to who *may* benefit from GAP and who may not. Having read this thread originally, my friend thinks GAP is not worth bothering with. Fair enough. His choice.

Mine is the exact opposite. I am about to buy GAP. The reason? I need to protect my own financial position, the same way several thousand others need to do so when purchasing a factory fresh vehicle.

In my case, the invoice for our new car received last Friday was £25,300. Of that sum, £7,600 was forthcoming from the PX I received from the dealer, £1,000 from the so-called 'deposit contribution' (yeah, right) from the manufacturer, and £6,500 cash from our savings. Total deposit paid: £15,100. Balance owing: £10,200.

This £10,200 is to be repaid over the next 36 months to the manufacturer's finance company / finance company partner. As is the way with all these purchase contracts, no interest at all is charged on 35 of those payments; interest only kicks in on the 36th.

At the conclusion of the 36 months, therefore, several £000s will still be owing to the finance company -- as indeed will those several £000s be owing on a reducing basis over the life time of the agreement.

Which is why GAP insurance is a good idea for folks like me: I do not want to be owing a finance company £000s in my second or third year of vehicle ownership, only for that vehicle to be written off by an insurer who will pay out *only* the insurer's own market value. Not only will I have no car, I'll have a BIG unpaid bill still to meet as per the terms of my contract.

At the time we were purchasing the car, the dealer attempted to flog us GAP insurance at £299. We fell about laughing. Not only did we refuse it, we also insisted on 3 years' free servicing: a motor manufacturer can well afford to subsidise that. From the estimated £740 saved on that servicing regime (comparing it with the past three years of main dealer servicing on our previous car) then allocating a small amount to pay for GAP insurance makes perfectly good sense.

So. . . we're off to pay £158 for GAP insurance which, in the event of the total write-off of our vehicle, will cover the difference between insurer market value and actual as-new value at the time of the incident. We'll be able to (a) pay off the £000s owing to the finance company and (b) have an additional £1,000, or more, so as to purchase new the same or similar vehicle at the invoice price prevailing three years' hence.

It's worth noting that this £158 premium for 3 years' GAP cover is less than we spent on three weeks' insurance for a family skiing holiday in the USA earlier this year. At a little over £1 a week for three years financial peace of mind, it actually makes no sense at all for a new car personal contract purchaser NOT to have GAP insurance. . .

. . . just so long as they don 't buy from that nice, smiley and utterly avaricious dealer. . . and think twice before falling for seemingly good GAP offers from outfits like the Daily Telegraph or AutoTrader. Do your own online research, then deal direct with your chosen insurer: not a third-party.