How to pick a Claim Limit for Gap Insurance?

Which Gap insurance Claim limit Do You Need?

Most Gap Insurance policies will have one, even though sometimes you may not realise it! Your claim limit plays an important role in your protection, as it forms the upper limit of any Gap Insurance Claim you can make

In other words:

Your Claim Limit is the maximum amount you will receive from the Gap Insurance policy to cover any claim you make.

This can take a little more thinking about and it is crucial that you consider this carefully.

Gap Insurance Claim Limit

Probably the first question to ask is what is the claim limit on a Gap Insurance policy and what role does it play?

If you take a Return to Invoice Policy for 4 years, the original car cost £16,000, you take a Claim Limit of £10,000 then lets look at an example of how it would work if you make a claim.

Three years into the Gap coverage, the vehicle is stolen and not recovered so it is written off by your insurance company. Due to the car depreciation, let's say the market value of the vehicle is now £7,000, so this means that to get back to the initial purchase price of £16,000 you have a 'gap' of £9,000. The £10,000 claim limit is therefore enough to cover this and pay you the £9,000 you require.

If the 'gap' had been £11,000 then your claim limit would simply have paid the maximum £10,000 you chose, leaving you £1,000 short of the original invoice price.

As you can see, the claim limit is an important consideration when buying a Gap Insurance policy, but how do you know which is the right one to choose?

The biggest problem is that no one can say with any certainty, exactly how much any vehicle will depreciate over a certain period. Obviously the longer you are looking for protection, the more your vehicle will drop in value.

The other aspect to consider is that you may well need a different claim limit depending on the type of gap insurance cover you opt for. For example, a Finance Gap policy may need a smaller claim limit because it only covers you to the outstanding finance settlement. A Vehicle Replacement Insurance policy covers you up to the replacement cost, this can clearly be a much higher figure and require a higher claim limit to cover it. Let's illustrate this point for you:

You buy a brand new Vauxhall Astra in 2018 for £20,000.

You take a PCP finance agreement through Vauxhall for the vehicle for 4 years.

In 2021 the Astra is stolen, it's value is now £10,000, your finance settlement figure is £11,500 and the equivalent new focus is now £22,000.

How would each of the types of Gap Insurance work for you?

Finance Gap Insurance - would pay the difference between the £10,000 the vehicle is worth and the £11,500 you still owe on the vehicle finance settlement.

Finance Gap Insurance benefit £1,500,  closest adequate claim limit £5,000

Return to Invoice
-  would pay the difference between the vehicle value of £10,000 and the original price you paid of £20,000. Therefore you can clear your finance shortfall of £1,500 AND have £8,500 left over for a deposit for a new car.

Return to Invoice benefit £10,000, closest adequate claim limit £10,000.

Vehicle Replacement Insurance - would pay the difference between the vehicle value of £10,000 and the replacement cost of the equivalent Focus (£22,000). This would mean you could settle your finance shortfall of £1,500 AND have £10,500 left over for a deposit for a new car.

Vehicle Replacement Insurance benefit £12,000, closest adequate claim limit £15,000

So as you can see, you can take Gap Insurance for the same vehicle, over the same period of time but the claim limit you require may be different depending on the type of cover you are looking for. 

Which Gap Insurance Claim Limit do you pick?

This is always your decision, and we do understand it is not always an obvious choice. However by considering the length of cover, the circumstances of your purchase and which type of Gap Insurance you want, we hope our explanation above will help you in making your mind up over the claim limit.

Whilst we would never suggest to you how to make this choice, we are always happy to discuss your particular circumstances with you, and point out your options. Please feel free to email or call us to discuss the Gap Insurance claim limit choices further.

Gap Insurance made Easy!