Does Your Car Insurance Have A 'gap'?

According to latest statistics the government's scrappage scheme continues to see sales of new cars steadily increase. Which of course means there are higher numbers of new cars on the roads. The pride of owning a new car certainly has something special about it, the new car smell and the sheer pride of knowing no one else has driven the car is for some, an exhilarating experience!

However, even with the scrappage scheme incentives buying a brand new car, along with the discounts currently being offered by many car dealerships, the sad truth is the minute the car leaves the showroom forecourt it will immediately lose value.

Which means even if you managed to pay cash up-front or brought the car on finance should you be involved in an accident and the car is written off by the insurers you could lose thousands of pounds, as the majority of insurance companies will only pay the market value of the car when it was written off, not the price you paid for it. Therefore if you brought the car on finance you will still be paying for a car which you can no longer drive or indeed have, which can deflate your morale as well as your income as fast as popping a balloon.

This where having Guaranteed Asset Protection, more commonly referred to as 'gap insurance' comes into play. It is designed to literally bridge the 'gap' between what the insurance company pays out and the amount you paid or are stilling paying for the car to ensure you are not out of pocket.

According to one of the major insurance companies the average new car drops in value by an incredible 40% within the first year. By the time the car is three years old you will only be offered, on average, 60% of the money you paid. As most car finance loans are taken out over three years, by the time you have paid the debt and actually own the car if it is then involved in an accident and written off by the insurers, you will only be offered less than halve of the price you paid. This where having gap insurance really comes into its own as your insurance company will cover the shortfall to enable you to clear your debt if there is any money outstanding as well as giving you the replacement value of the car.

However, as with most things in life gap insurance will only come into effect if your car is written off completely, it will not provide cover for damage which is repairable or is already covered by your standard insurance policy. Therefore before you make the decision to pay the extra for gap insurance you will need to decide whether the risk of you being involved in an accident, which will completely write off your car, is worth the extra money. At the end of the day if you have high mileage using roads which are notorious accident black spots, gap insurance can be well worth the extra.

You should also be aware that gap insurance policIes often have many restrictions which may also help you make your decision, because if the restrictions are going to apply to your circumstances it may not even be possible to have this type of additional cover or be worth the investment. As with all car insurance quotes read the small print before you sign any agreement.