Buying a new car is a considerable investment, and depreciation is the highest when a car is new. For these reasons, purchasing a brand new car can be very daunting. If your new car gets written off, even comprehensive car insurance cover may not pay out what you originally paid for the vehicle. Your comprehensive car insurer may only offer the vehicle’s market value at the time of the total loss, leaving you to cover the potentially significant shortfall.
Guaranteed Asset Protection (GAP) insurance ensures that if the worst happens and your car gets written off, you will not have to cover the shortfall between your comprehensive insurance payout and the amount you originally paid for your vehicle. The finance gap is also covered if the amount the car owner owes on finance is higher than the car’s value.
This article will cover the importance of buying GAP insurance for new cars and the circumstances in which GAP insurance for new vehicles is recommended. You will also learn about the available GAP insurance policy options for new vehicles and whether ALA GAP insurance is the right fit for you.
As mentioned, the market value of new cars initially decreases very rapidly after leaving the car dealer. In fact, new cars can lose up to 20% of their market value as soon as you drive them out of the dealership, and they may lose a further 10-20% within the first year. For example, if a customer bought a BMW 3 Series from a dealership for £32,000, it would depreciate on average by nearly £400 per month for the first year – much of this depreciation would occur on the first day.
GAP insurance is, therefore, the most important for new cars because it will cover this large shortfall due to depreciation if you lose your brand new car. GAP insurance is also important for new vehicles when paying for it on finance. At the start of owning a new car, the outstanding finance is likely to be more than the car’s current market value. For this reason, GAP insurance would be necessary to cover this total loss gap.
As mentioned, GAP insurance is the most important for new cars since depreciation is the highest, and the amount owed to your finance provider may be higher than the current value of the vehicle due to depreciation. The following are additional reasons why buying GAP insurance on new cars may be especially beneficial:
How you paid for your car or when purchasing GAP insurance will determine which GAP insurance policies best suit you. Common policy types are Back to Invoice, Vehicle Replacement and Contract Hire GAP insurance.
GAP Insurance for over 35 Manufacturers including Audi, BMW and Land Rover
This kind of GAP insurance coverage will pay you the shortfall between the payout by your motor insurer and the amount you originally paid or the outstanding finance at the time of the total loss, whichever is higher. This kind of GAP insurance can cover vehicles bought within 180 days of getting your car.
Back to Invoice Plus can be offered if you bought your car within 365 days of purchasing GAP insurance as long as your comprehensive insurance company has coverage on a new-for-old basis for the first 12 months.
This kind of GAP insurance will pay you the shortfall between the comprehensive car insurance payout and the cost of a new replacement vehicle or the amount owed on finance, whichever is higher. Vehicle Replacement GAP insurance may be ideal for new cars if you bought your new car at a discount or if new car prices have increased since the time your bought your vehicle. Vehicle Replacement Plus can only be offered for cars bought within 90 days of purchasing GAP insurance.
If you are leasing a new car and it gets written off, you may have outstanding rental payments and also suffer an insurance shortfall. Contract Hire GAP insurance covers the shortfall between the comprehensive car insurance payout and the balance owed to the leasing company. Contract hire Plus is available if you have leased your vehicle within 365 days of purchasing GAP insurance.
This kind of GAP insurance is not ideal for new cars, but it can be offered as a backup if you didn’t buy GAP insurance within 365 days of receiving your car. Agreed Value GAP insurance will pay you the difference between the comprehensive insurance payout and the market value of your vehicle at the time of purchasing GAP insurance (based on the Glass’s Guide). Due to the high drop in value of new cars, Agreed Value GAP insurance isn’t as beneficial as the other GAP insurance policies; the first year of depreciation (20-40%) would not be covered. It would, however, cover any future depreciation if your car gets written off.
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