When you’re purchasing a car, it’s natural to be worried about losing money on the asset as it depreciates. Indeed, in year one, a new car will depreciate by between 15 and 35 per cent. One way to protect yourself from being out of pocket is through gap insurance. Below, we explore what gap insurance is and what to consider when taking out a policy.
What is gap insurance?
Naturally, one of your first questions will be what is gap insurance? This covers you in a scenario where your car is written off after an accident. In this situation, your insurance provider will pay you the market value of the car at the time of the crash rather than the amount you paid for it. This means that if you bought a new vehicle a few years ago, you might only get back around 50 per cent of what you paid. However, if you have gap insurance, you’ll be covered by the difference between your insurance payout and the original cost of the car.
Why is it a good idea?
Gap insurance is a good idea if you’re purchasing a vehicle that you expect will depreciate significantly. This can protect you from making a significant loss on your vehicle in just a few years. As such, people need it most when they’re purchasing an expensive new vehicle that they want to protect.
What to consider when taking out a policy
For a start, you’ll need to consider the length of your policy. Ideally, you’ll want a policy that will cover you for a long enough time that you feel comfortable. You don’t want to end up in a situation where your policy runs out quickly and you’re liable to face a significant loss if your car is written off.
There will be exclusions in some gap insurance products, and it’s important that you understand these before you take out the policy. This could be a clause in the insurance that prevents a payout from happening in a specific circumstance.
Value of your vehicle
You should also consider the value of your vehicle. If you’re not paying a high initial fee, gap insurance might not be worth the hassle.
Claiming on your policy and cancelling it
Finally, when you’re shopping around for your policy, you should investigate how to make claims and how to cancel the policy. If a policy seems too complex to act on, you should search for another.
Gap insurance can make plenty of sense for motorists. And by following the guide above, you should be all set to make an informed decision about whether this is right for you.