No motorist ever wants to see his or her car written-off or stolen. But if you're unlucky enough to have to say goodbye to your car in such circumstances, you can at least ease the financial pain by having 'gap' insurance cover in place.
As its name suggests, gap insurance is designed to cover the gap between the amount you paid for your car, and the amount your insurer will pay out based on its current value.
So, for example, if you pay £15,000 for a new motor, it will start losing value the moment you drive it off the forecourt. If you crash on your way home and write the car off, you might only get £12,000 from the insurer, which means you'd have to stump up at least another £3,000 of your own cash if you wanted to replace your car with a new equivalent model.
Here, we take a closer look at how this kind of cover works, and how it could prove a false economy to drive without it.
What exactly is car 'gap' insurance?
Car gap insurance helps you get back on the road in a car that's equivalent to your old motor if your car is written-off or stolen. Insurers will only pay out what a car is worth now, not what it cost to buy, so the amount you get via your claim could be substantially less than you paid for it.
Gap insurance therefore exists to cover the gap between the insurance pay-out and what you paid for your car, so you don't end up out of pocket.
Don't assume you won't need this kind of cover - statistics show that nearly 120,000 cars are stolen every year, while more than 500,000 are written-off.
What are the advantages of car gap insurance?
The biggest downside of virtually all cars is that they depreciate in value incredibly quickly.
According to the AA, the average new car will only be worth around 40% of its original price after three years, based on the owner driving 10,000 miles a year. That means it will have lost around 60% of its value at an average of 20% per year.
Of course, the actual amount your car depreciates in value will depend on the make and model, but it's safe to say that the vast majority of cars will lose a significant
amount of their value over a few years.
The problem this causes is that, if your car is written off or stolen and you want to go out and buy a car that is similar to the one you bought a few years ago, you will have no choice but to make up the difference yourself.
This is where car gap insurance can prove invaluable: it bridges the gap between the price you paid at the outset and the amount you receive from your insurer.
Put simply, car gap insurance enables you to buy a replacement car which closely resembles the one you bought originally without you having to dip into your own funds.
Car gap insurance is a cost-effective way to protect your finances, and quotes start from just a few pounds per month. But it's still important to shop around for the best deal rather than sign-up for the product the car salesman offers you. Indeed, it's often cheaper to buy cover independently rather than through a car dealership, as there aren't any showroom overheads or commissions to pay.
As a general rule, cover is available for cars up to seven years old with fewer than 80,000 miles on the clock, although this varies depending on which provider you go to, so always read the small print carefully and compare policies before buying cover.
It doesn't matter how you bought your car, whether you used cash or credit or whether you bought from a dealership or privately, you can still apply for cover.
Spread your payments
One advantage of buying car gap insurance is that you can usually pay your premiums in monthly instalments, spreading the cost over up to 36 months, although this varies depending on the individual provider.
At the end of the 36 months, you can take out cover once again, provided your car does not exceed the seven-year age limit.
At this point, you will have to make a new application, and the car will need to be valued again, but once cover is in place you will have peace of mind that you are financially protected in the event that your car is stolen or written off.
To apply for a gap insurance policy, you need to be at least 18 and the named driver of the car.
Save time and money on your car insuranceSource: www.moneysupermarket.com