Around three in four cars are now bought using car leasing, contract hire or other types of finance. If you drive your car using hire purchase or other finance, you should have considered gap insurance when you bought your car.
If you’re thinking of signing a new car lease or you are looking for gap insurance, our guide will help. Read on for more information about the benefits of this type of insurance and for three ways in which you can get a better deal…
What is gap insurance?
If you make an insurance claim on a new car, you will often find that the insurer pays out based on the current value of the vehicle. This can mean that the payout is less than the amount you owe on your car leasing, contract hire or hire purchase agreement.
Gap insurance is designed to cover the difference in value between an insurance payout and the replacement value of your car.
For example, if your vehicle is written off as a total loss, its current value according to the insurer will generally be less than it costs to replace the car, and a lot less than you owe the finance company for it. Gap insurance covers this difference and ensures you’re not out of pocket.
3 ways to get a better deal on your gap insurance
1: Shop around
You don’t have to buy gap insurance from the dealer that sells you the car. You can head online to research the cost of gap insurance and you will often find that it is significantly cheaper if you buy it from a specialist provider or from a broker (see later).
2: Get the right policy for your needs
Make sure you choose the right gap insurance policy for your needs. Price is only one aspect – you should also consider what the policy covers. For example, if you have a vehicle less than a year old and your insurer provides ‘new car replacement’ for that initial period, shop around for gap insurance that comes with a deferred starting date.
You should also check any excess on the policy as well as establishing how the vehicle will be valued in the event of a loss. Other factors to consider are:
- The maximum level of cover – how much of the ‘gap’ you want to cover
- The maximum value of your car – some insurance providers will only cover less expensive cars
- The term – how long do you need your cover for? (generally will be as long as your car lease or contract hire agreement)
- The age of your vehicle – some insurers will only cover brand new cars
Remember that gap cover is non-renewable, so you’ll only be able to cover your car once.
3: Consider an insurance broker
Consumer organisation Which? says that dealers don’t sell as much gap cover as third party insurers and, therefore, it’s more expensive for them to underwrite.
Steve Foulsham of the British Insurance Brokers’ Association says: “There are no industry statistics about gap insurance but it remains the monopoly of car dealers. They have a captive audience. A typical dealer will sell upwards of 25 per cent of cars with gap insurance.
“There are alternative, more flexible gap policies such as an annually renewable type rather than ones that typically cover three years. Consumers can save money by buying this cover from a broker.”