To expand on my previous post I placed an order for a new car over the weekend on a 4 year PCP
The dealer wanted £700 for GAP insurance but looking on the internet I can buy a policy with a £10,000 limit over 4 years which pays the difference between the motor insurers settlement and the outstanding finance balance for a one off payment of £129 from directgap.co.uk
Finance GAP insurance is generally, a bad idea. Finance GAP insurance is only ever designed to clear your liability to the finance company (e.g. leave you in a "zero" (no car but no finance) position) and it's a descending level of cover because every month that goes by the amount outstanding on finance decreases (as does the value of your vehicle, granted) but if you consider that with a PCP agreement you have that final balloon repayment to pay, the theory (this being their prediction of "Market Value") is that in the event of a write-off towards the end of the four year term of your PCP, your Motor Insurance payout should be enough to clear most (if not all of) the outstanding finance anyway.
It's also highly possible with a PCP (assuming you got any discount off the list price and/or put a deposit down) that there's never going to be the possibility of being in Negative Equity (where the Motor Insurer's payout at any given time would
not be sufficient to clear the remaining finance) in which case a Finance GAP insurance policy could very easily be defunct from the outset - for this reason (apparently) most brokers of GAP insurance have stopped selling Finance GAP insurance.
As a minimum you should be looking at Invoice GAP insurance, though if you did get discount off the manufacturer's list price for your vehicle, Replacement GAP insurance would be superior still. Ideally you should look to buy a "combined" policy too... for example:
Finance GAP insurance, covers the difference between your Motor Insurance payout and the amount outstanding on finance at the time of claim (assuming there is a shortfall)
Invoice GAP insurance, traditionally, covers the difference between your Motor Insurance payout and the original purchase price of the vehicle. In most cases you'd then be able to clear any remaining finance and have money left over to put towards your next car. But if you paid full price for the car, put little or no deposit down and had a high interest rate over a long duration, there could be a period of time in the early days of your finance agreement when the amount of your outstanding financial liability is greater than the original purchase price. For that short period of time, a Finance GAP insurance policy would be temporarily superior to an Invoice GAP insurance policy.
Replacement GAP insurance, traditionally, covers the difference between your Motor Insurance payout and the cost of replacing the vehicle with one of the same Make, Model, Specification, Age and Mileage (or nearest equivalent) at the time of claim, as your original vehicle was
when you first bought it. E.g. in the case of a brand new vehicle it'd be paying the difference between your Motor Insurance payout and what it would cost to buy a brand new version of the same (or nearest equivalent) vehicle. Just as with Invoice GAP insurance, in most cases you'd then be able to clear any remaining finance and have money (more money than with an Invoice GAP insurance policy) left over to put towards your next car, but again, if you had paid full whack, little or no deposit, high interest rate, long duration etc etc it's not impossible that the early settlement figure could even be greater than the original vehicle purchase price.
By comparison...
A "combined" Invoice & Finance GAP insurance policy covers the difference between your Motor Insurance payout and
the greater of either:
- The amount outstanding on finance at the time of claim, OR
- The original purchase price of the vehicle
You can take it one step further too and get a combined Replacement & Invoice & Finance GAP insurance policy which covers the difference between your Motor Insurance payout and
the greater of either:
- The amount outstanding on finance at the time of claim, OR
- The original purchase price of the vehicle, OR
- The cost of replacing the vehicle with one of the same Make, Model, Specification, Age and Mileage (or nearest equivalent) at the time of claim, as your original vehicle was when you first bought it.
FYI I work "in" insurance so I have a good comprehension as to how this works. I've also sold cars in the past (for my sins) and have therefore seen GAP insurance being sold (and sold it myself) from the Motor Dealer's perspective. However...I've gleamed most of the information I've posted above from
www.GapInsurance.co.uk (Frank Pickles Insurance Brokers). I've bought numerous policies from them over the years and always found them to be incredibly helpful.
Something else for you to consider as well
Ian J (or indeed anyone else buying a brand new vehicle), is that with a brand new vehicle, you may find that your Motor Insurance policy already covers your vehicle on a New-For-Old basis in the first year anyway and this could mean that you don't require GAP insurance for that first year. If this is the case, Frank Pickles (and others) allow you to buy a 3-year policy (which is cheaper) and defer the start date so that it just covers years 2, 3, and 4. Or, the other option is that they will also allow you to buy GAP insurance up to 12 months after taking ownership of the vehicle.
They (Frank Pickles) have a good blog article about "New For Old cover" here:
http://blog.gapinsurance.co.uk/index.php/2015/02/23/the-perils-of-new-for-old-cover/
