Top 10 questions asked about Gap Insurance

What do you need to know to get a Gap Insurance quote? Here are our Top 10 questions you may want to ask when looking at Gap Insurance.

See how many you knew before.................

1 - What is Gap Insurance?

Possibly the most obvious question we are asked is simply 'What is Gap Insurance?', so that seems as good a place to start as any. Whilst there are a number of types of Gap Insurance ('Gap' is short for Guaranteed Asset Protection if you were wondering), but the basis of them all is the same.

The vehicle you buy will lose value over time. If this vehicle is then subject to a 'total loss', after a theft, fire, flood, accident etc, then your motor insurer may only pay you with the market value of the vehicle at that time. Gap Insurance can cover an element of the financial loss. Which element you wish to protect determines the type of Gap Insurance you may by.

In essence you are looking to plug the insurance Gap that your motor insurance may leave.

That brings us nicely to....................

2 - What type of Gap Insurance should I buy?

There is no 'one size fits all' answer for Gap Insurance in 2015. The days of a simple three year Return to Invoice being the only option has long since gone. You may find a number of Gap Insurance products could be available for you, but which one would suit you in particular takes a bit more thought. So the question is simply

Which is the best Gap Insurance?

Here we provide a simple Gap Insurance comparison for the levels to explain the elements you may wish to insure.

Finance and Contract Hire Gap
- insures between the motor insurance settlement and the amount required to pay a hire purchase or lease style agreement off in full.

Suitable for : Hire Purchase agreements with small deposits (increasing the chance that more than the current value of the vehicle may be owed). Lease agreements where no option to own the vehicle is available (eg Contract Hire), and the only liability is the financial settlement.

Not suitable for : Cash purchase, vehicles on finance agreements with a large deposit.

Combined Return to Invoice Gap - covers the difference between the motor insurers settlement and the original purchase price paid for the vehicle, or the outstanding finance settlement, if that is higher.

Suitable for : Cash purchases, finance agreements with reasonable deposits (lessens the chance of the vehicle value being lower than the finance settlement)

Not suitable for : Contract Hire leases, not the best choice for purchases that have received a large discount from the original RRP (eg a large manufacturers discount on a brand new vehicle, or a 'run out' model.

Combined Vehicle Replacement Gap - covers the difference between the motor insurers settlement and the cost of replacing the vehicle with the same model you first purchase. For example, of you bought a brand new Mini Cooper 1.6 D then the cost of another brand new Mini Cooper 1.6 D at the time you make the claim. This price may well be higher than the invoice price you first paid.

Suitable for : Cash purchase, finance agreements with good deposits. 'Run out' models that have been heavily discounted. Where you may be considering longer terms of cover, and the chance of the replacement vehicle being more expensive may increase.

Not suitable for : Contract Hire vehicles. Models that are brand new on the market should be considered carefully with Vehicle Replacement Gap, as they may not attract much of a discount initially, but the replacement vehicle in the future may well be cheaper.

Agreed Value Gap - covers the difference between the motor insurers settlement and 105%* of the Glass' Guide Retail Value for the vehicle at the point of 'total loss'. 

Suitable for : Vehicles owned longer than 105 days, or bought privately with no invoice available from a VAT registered motor dealer.

Not suitable for : Contract Hire vehicles, vehicles on finance where the settlement is higher than the vehicle value.

*Please note this is the case with an Easy Gap policy. Many others in the market may only cover 100% of the Glass' value. This means a lower settlement to you of £500 for every £10,000 of value.


3 - What does 'Combined' mean with Gap Insurance?

The word 'combined', or 'combi', or 'plus' is often added to the name of a Gap Insurance product. It normally means that the policy can cover one of at least two events. For example, a 'Combined' Return to Invoice can cover the difference between the motor insurers settlement and either the outstanding finance settlement, or the original invoice price paid, whichever is the higher at the time you make the claim. 

Covers you whichever way you look at it!

4 - What is a 'claim limit' on a Gap Insurance policy?

A key point, please read this!

The 'claim limit' is simply the highest amount that your Gap Insurance policy will pay. It is important to remember that this amount is added to your motor insurers settlement, to cover you in the way your policy is designed to settle.

For example, you buy a car for £10,000 and you have a three year Combined Return to Invoice policy with a £5,000 claim limit. This means you have up to £5,000 to cover between your motor insurers settlement and the original invoice price you paid.

You can see that choosing a claim limit is important, and you want to be sure that you have sufficient to cover any claim during the policy term. If you have a more expensive vehicle, or you want longer cover, then the 'gap' you need your claim limit to cover will be bigger.

Picking a claim limit is not always easy, please take a look at this for greater detail on How to Pick a Claim Limit, or call a member of our team to discuss in detail.
 

5 - What price do I put for the vehicle price to get a Gap Insurance quote?

This can differ depending on the type of Gap Insurance you want. If in doubt then you should use as close to the net invoice price you have originally paid for the vehicle, certainly with Combined Return to Invoice or Combined Vehicle Replacement.. How do you get this figure? Well it should be on your invoice, and should include any factory extra's, cash deposit, part exchange allowance. The figure should not be the list price of the vehicle if a discount has been applied, or include any interest from the finance agreement.

For Contract Hire agreements you may not have a purchase invoice for the vehicle. In that case the P11d value would be perfect, if not the list price for the from the manufacturer (these should be very similar, if not identical).

For Agreed Value then you can get the Glass' Guide value for the vehicle directly at Glass.co.uk. Remember to add 5% to the Glass Guide Retail Value for the vehicle, as we provide that extra 5% protection with our Agreed Value Gap.

6 - Why do I not use the list price for a Gap Insurance quote?

This is simply because this figure is probably completely irrelevant for the claim, and you may even end up paying more premium than you need to.

Let us explain.

If you take a Combined Return to Invoice Gap, and for a brand new vehicle with a list price was £26,000 and you ended up paying £23,000 (after some expert haggling), then the net invoice price you paid is always £23,000. This is the maximum you will receive from this type of policy.

If you had taken a Combined Vehicle Replacement Gap on the same vehicle, remember it is the cost of a brand new replacement at the time you make the claim. Again the £26,000 list price when you bought the vehicle is completely irrelevant, as the replacement cost at the time you claim could well be a higher price again.

At Easy Gap we ask you to use the net invoice price you paid, even when you are buying a Combined Vehicle Replacement Gap. Using the figures above again, the cost of a 3 year Combined VRI, with a £15,000 maximum claim limit on £23,000 purchase price is currently £139. The quote for the same vehicle but using £26,000 purchase value is £153. However both quotes would settle (up to the maximum of £15,000) at exactly the same amount, the cost of the replacement when you make the claim. By putting the 'list price' in you have simply spent money you do not need to. 

This will not happen every time, but Gap Insurance premiums are calculated on purchase price bandings, and when you tip over one then the price increases. We will always ask for a copy of the sales invoice in the event of a claim, so as long as that figure is correct then we can process your settlement accordingly.

Please be aware that some providers will ask you to use the list price for the vehicle, not the price you paid. We feel this is confusing, irrelevant and misleading and may even penalise you financially. At Easy Gap we like to keep it, well easy!
 

7 - What happens if I sell my vehicle before the cover ends?

This happens more than you think!

This can differ with providers in the market, and there can be quite a difference between the products in the motor dealer and online providers like Easy Gap.

Most Gap products will allow you to cancel the policy, and apply for a 'pro rata' refund for the time left on the policy. This is commonplace with both motor dealer and online products.

However, one difference you may find is that the motor dealer products will not allow you the option to transfer your cover to another vehicle. This can be extremely convenient when you part exchange you vehicle for a new one. The options at Easy Gap (and many other independents) include either to transfer the balance of the current policy, or if you wanted longer for the new vehicle, you can have the credit left on the old policy against the cost of your new Gap cover.

8 - I have 'new for old' on my car insurance, do I need Gap Insurance at all?

This may save you money, but you have to check some facts first!

This is a great question, and one that we are asked time and time again. We also see it often on internet forums, with a wide range of opinions given in response.

Here is the issue
  • Your motor insurer may provide for a brand new replacement vehicle in the first year of your ownership, if the vehicle is declared a 'write off'.
  • You intend to own the vehicle for 2,3,4 or maybe more years. 
You may think 'Is Gap Insurance worth it on a new car?'

However you need to consider the following points
  • Your motor insurer may have clauses in place that could mean they do not replace the vehicle at all, and only give you the 'market value' of the vehicle at the time you make the claim. An example of this may be where no replacement vehicle is available within a certain time scale.
  • Even if they do provide full replacement cover in the first year, you still have the depreciation for the following years to consider. These figures will be higher year on year.
  • You have to buy most Gap Insurance products within a specific time scale of buying the vehicle. Simply thinking you can come back when your 'new for old' runs out is not a good thing to rely on!
The key here is to check the terms of your motor insurance carefully, and ensure that the terms they offer for a replacement vehicle is something you are happy with. If you feel they are not, then it may be wise to take a Gap Insurance policy from day 1 of your ownership, just to be sure.

However, if you are happy with the motor insurers terms for the first year, then we have a solution for you........defer the start date!

9 - What is 'deferred' Gap Insurance?

If you have 'new for old' replacement cover with your motor insurer in that first year (quite common with a new vehicle, so a good idea to check), and you are happy with the terms, then you can simply defer the start date of the Gap Insurance until the replacement terms run out.

This usually means that you set the start date of the Gap Insurance for the anniversary of the vehicle registration with the DVLA, and means that your Gap cover 'kicks in' as your motor insurers terms for a replacement come to an end.

There are some key things you need to remember though

  • Even with a deferred Gap policy, you must still buy the cover within the set period from your vehicle purchase. For Easy Gap that is currently 105 days.
  • You must consider your claim limit carefully. Remember by deferring the Gap you are in effect adding a further years worth of depreciation. For example, If you take a 2 year policy, deferred for 12 months, then you need a claim limit suitable for making a settlement at the end of year 3.
  • You need to make sure you are completely happy with the motor insurers terms for the first year, Remember by deferring the Gap you are totally reliant on the motor insurer for that first year.
Easy Gap were one of the first companies to offer deferred Gap Insurance policies online in 2010. Today many of the leading online brands allow you to do this, and even a small number of motor dealer products. Remember this can really save you some money by taking the insurance for a period you really need, as long as you do your homework in the first place.

10 - Why are online Gap Insurance providers, like Easy Gap, so much cheaper than the motor dealers?

If we got a pound for every time we are asked this question then we would be able to give you your Gap Insurance for free!!! Well maybe not quite! The age old debate on Gap Insurance cost.........


The difference between the premiums charged by motor dealers, and that you get from online brands like Easy Gap can be quite eye watering. The savings can lead to some questioning as to whether you are even looking at the same sort of insurance.

We received the following feedback recently, and this is typical of what we hear time and time again.

"I got an on-line quote then called to speak with someone just to make sure it was exactly what I wanted/needed. The guy was really helpful on the phone and the price was amazing. £299 from the dealer where I was getting the bike, £63 from you! It's a no brainer."

".....£200 cheaper than the identical policy offered by the dealer"

"Dealership offered my 3 years cover for £199 and i have got this for £69"

Same sentiments over and over again, but how is this possible that the premiums are so different?

There are 3 reasons

Insurance Premium Tax -
When you buy a Gap Insurance policy from your motor dealer, then the rate of Insurance Premium Tax you pay is the highest rate of 20%. When you buy independently, it is the standard rate of insurance premium tax, which is traditionally lower.

Supply chain - When you buy Gap Insurance from the motor dealer then because they provide a low number of policies as a business they will not be able to get a deal directly with an insurance distributor, or at least not a very good one. This means that they may need to go through a manufacturers finance company, the head office of the dealer group or some other kind of collective that an insurer will deal with. This adds further 'cogs to the wheel' and therefore can increase costs quite significantly.

Stand alone brands like Easy Gap have underwriting deals directly with insurers and distributors, based on the volume of business we can provide. This lowers costs significantly.

Commission structure - Remember when you buy a policy from Easy Gap we do make a profit. When you consider that you can buy a policy from us at around £60 that the dealer may offer an equivalent for £300, then you can imagine what commission payments are made per sale to employees of the dealership. A £300 policy may have a commission for the salesman, the business manager and even the sales manager within the premium you pay. Remember you could even have the price of the Gap Insurance added to your finance, meaning more interest and even more commission for the dealer.


We hope our run down of the commonly asked questions on Gap Insurance helps you. Remember if there are any more we can help you with, just give us a call, or email us at customerservices@aequitas-automotive.co.uk.