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GAP Insurance

Most fully comprehensive car insurance policies only offer a 'new car replacement' during the first 12 months of owning the vehicle. Insurers only cover the current market value of a car, which is somewhere just above the trade price, but lower than the retail price (often determined using a valuation service such as Glass’s Guide). So if your car is written off or stolen after this period, the insurance paid out is likely to be less, ultimately leaving you out of pocket.

Gap insurance covers the difference between the market value of a car and the amount originally paid for it and so eliminates the risk that the insurer won't pay out enough to clear the finance in the event of a loss. For example if a car is worth £10,000, and you wrote it off some three years later, when its value had depreciated to about £4,000, the Gap policy would meet the £6,000 difference.

Gap insurance is therefore worth considering as:

  • It can help avoid 'negative equity', i.e., the level of the debt exceeds the value of the car
     
  • It can help to avoid being left without a vehicle If you have an accident, and still owing thousands in outstanding finance
     
  • It can insure against your new car depreciating in value. The quicker your car loses its value, the less you might get back from an insurance payout if you have an accident or your car is stolen.

The most common types of GAP Insurance are Finance GAP (FGI) and Return to Invoice GAP (RTI). FGI covers the difference between the insurance payout and the amount left to pay on finance and RTI covers the difference between the insurance payout and the original purchase (invoice) price or the outstanding settlement figure owed to the finance company (whichever is greater).

RTI covers you should there be a shortfall between the insured value of your car and the net invoice you originally paid for the vehicle in the event that your car is a total loss or an unrecovered theft.

As with FGI, the shortfall could be a significant sum depending on the rate of depreciation of your vehicle. RTI protects you by paying the difference between the price you actually paid for the vehicle and the motor insurance company’s value at write off for up to 3 years. And similarly, your RTI claim will also include up to £1500 of dealer fitted accessories (if applicable).

You must, however, be insured under a Comprehensive UK Motor Insurance Policy, or International Motor Insurance Card (Green Card) effective at the date of total loss. And it is worth taking note of the following exclusions:

  • Any vehicle that is not covered by a fully comprehensive motor insurance policy
     
  • Any Excess on your Comprehensive motor insurance policy
     
  • Vehicles used for hire or reward, public service, competition, rallying or racing
     
  • Vehicles being driven by any person not holding a full motor license to drive the vehicle
     
  • A vehicle that is stolen by any person who has access to the keys of the vehicle
     
  • Any total loss by accident which was caused when the driver of the vehicle was under the influence of alcohol, (as defined by legal limits) or under the influence of drugs not prescribed by a medical practitioner.

The difference between the current market value of your vehicle and the remaining period of the finance agreement could be a significant sum depending on the rate of depreciation of your car. And you will be held liable for this shortfall by the Finance Company. FGI, however, protects you against this difference. What’s more, your FGI claim will also include up to £1500 of dealer fitted accessories (if applicable).

You must, however, be insured under a Comprehensive UK Motor Insurance Policy, or International Motor Insurance Card (Green Card) effective at the date of total loss. And it is worth taking note of the following exclusions:

  • Any vehicle that is not covered by a fully comprehensive motor insurance policy
     
  • Any Excess on your Comprehensive motor insurance policy
     
  • Vehicles used for hire or reward, public service, competition, rallying or racing
     
  • Vehicles being driven by any person not holding a full motor license to drive the vehicle
     
  • A vehicle that is stolen by any person who has access to the keys of the vehicle
     
  • Any total loss by accident which was caused when the driver of the vehicle was under the influence of alcohol, (as defined by legal limits) or under the influence of drugs not prescribed by a medical practitioner.

Enquire about our peace of mind GAP insurance