Can Gap Car insurance beat falling car values? - February 2009

This regularly updated section of the HomeApproved web site will cover the latest trends, research, opinion and developments in the UK car insurance sector.

Can Gap Car insurance beat falling car values?
This insurance covers the difference or 'Gap' between the value of a car before it was written off or stolen and the amount of money originally borrowed to buy it. It is available on both new and used cars.

Gap car insurance is becoming popular as car buyers try to hedge against plummeting values. But is the little known policy covering depreciation worthwhile?

The value of new and used cars has taken a battering over the past year, as sales collapse, and sellers are forced to slash prices. While this has spelt good news for car buyers hoping to save on their purchase, it has caused headaches for those unlucky enough to have their car written off or stolen. These will find insurers only pay out the current market value of the car, which may fall far short of what they paid for their vehicle.

Increasing numbers of those who have borrowed to fund their car purchase are turning to Guaranteed Asset Protection (Gap) insurance to 'calm their fears over falling car prices'.

For example, if a person borrowed £12,000 to buy a car and it was written off a year later, their fully comprehensive insurance would only cover the value of car after depreciation, say £10,000, leaving the owner with a £2,000 deficit.

Gap insurance covers this deficit so the borrower is not left out of pocket and can ease the fears of buyers less keen to take out a car loan due to rapidly falling prices leaving them out of pocket, says the FLO.

Ian Crowder from AA said: 'This type of insurance is coming into its own by encouraging people into buying a car who may be nervous about doing it at this time. Cars are losing value fast and buyers are getting into negative equity very quickly if anything goes wrong. People are staying clear because resale values are so much lower than they used to be. 'But it seems an increasing awareness of Gap may be an encouragement to them.'

As with any insurance product, taking Gap insurance direct from a dealer is likely to prove more expensive than shopping around. Malcolm Tarling from the Association of British Insurers, said: 'This can be a bit of a life saver for borrowers, but rather than buying from a dealer, you are much better off doing our own search on the market.'

The overall cost depends on the type of car, its purchase price and the length of cover. There are also three main types of Gap insurance: Return to Value Gap (for cars owned for more than three months), Return to Invoice Gap (for those owned less than three months) and Vehicle Replacement Gap (for new cars only). However, all operate under the same basic principle.

ENDS

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