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What is the right claim limit?
March 8, 2013
A frequently asked question in the gap insurance world is, what is the right claim limit? The answer quite simply is, there isn't a right answer. A Claim limit can only be an approximate, as nobody knows exactly what a car is going to be worth in a certain amount of time. Things such as public opinion, the economic climate and current rates can all influence the depreciation and appreciation of vehicles and therefore a claim limit should be based on, taking everything into account, what you believe will cover you completely. 

A claim limit is an extremely important part of your gap protection, as it essentially forms the upper limit of any gap insurance claim you will make. So, your claim limit is the absolute maximum amount you will receive from your gap insurance cover, if you happen to make a claim. Meaning, that if your claim limit is not big enough, you may lose out. You should consider your claim limit carefully. 

For example, if you took out a 4 year Return to invoice policy on a vehicle that cost £16,000, lets say that you took a claim limit of £10,000. Imagine you are three years into your coverage of gap insurance and your vehicle happens to be stolen, never seen again and is therefore written off by your own motor insurance company. Due to car depreciation, imagine your vehicle now has a market value of around £7,000, this is the amount your motor insurance will award you. So, this means that to "Return to your invoice" price you have a gap of £9,000. You have a £10,000 claim limit and so your claim limit is sufficient enough to pay the £9,000 you require to be standing back in your original financial position. If your car had dropped in value to around £5,000, then the gap would have been £11,000 and your £10,000 claim limit would have left you £1,000 short of the original purchase price of your car, which is not really what you are aiming for, when taking out gap insurance. 

So as you can see, the claim limit is extremely important when you decide to buy your gap insurance policy. Though there is no certainty about the right claim limit you can choose, nobody knows the exact depreciation rates of a particular car over a certain amount of time. Obviously, if you are looking for a longer period of protection, then your vehicle will depreciate more, depending on how much time has gone by. 

Other considerations you should make are, you may need a different claim limit due to which ever type of gap insurance you pick. For example, Finance Gap Insurance only covers your outstanding balance owed to your finance company and therefore a smaller claim limit is more than likely to be sufficient. A vehicle replacement gap insurance policy may need a higher claim limit, as this type of gap insurance is covering what it would cost to buy the exact same standard of vehicle again and due to car appreciation, this is likely to be more than you originally paid. 

For example, you have bought a Vauxhall Astra 2013, for £20,000. Two years later in 2015, your car happens to be stolen and it's value is now £10,000, the equivalent model is now £22,000, so after your motor insurer has awarded you with your £10,000, it would take another £12,000 to be able to buy the same equivalent model again, therefore you would need a claim limit bigger than £12,000 to be sufficient as £10,000 could not get you what you wanted. 

As we have pointed out, you can take gap insurance out for the same vehicle and the same period of time, though the claim limit may be different depending on your particular needs. The gap insurance claim limit you decide on is always your decision and although it is not always an obvious choice, considering the length of cover you want, your particular circumstances and the circumstances of the vehicle purchase, along with which type of gap insurance you would like, should lead you to making a sufficient decision about your claim limit. 

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