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New Car GAP Insurance: A Comprehensive Guide for the UK Market
Purchasing a new car is an exciting experience but also a significant financial investment. Whether you buy your new vehicle outright (for 'cash'), fund through dealer finance packages like hire purchase or PCP, or even lease your new car, the financial commitment can be a significant outlay.
This is why many UK car buyers making a new car purchase will look at GAP Insurance as an additional layer of protection. .png "GAP Insurance for a new car")
Whilst a range of GAP Insurance products is available in the marketplace, are some more geared towards getting a new car than a used one?
In short, yes.
Here we provide the background to your options for GAP Insurance for a new car and explain why these may be more appropriate for a new vehicle than a second-hand one.
What is GAP Insurance?
GAP Insurance is an optional additional finance protection that can top up your motor insurer's settlement if the vehicle is written off or stolen.
If your car is deemed a write-off, then your comprehensive car insurance settlement may only be based on the market value of that vehicle at the point of loss. This is different from the price you paid initially.
Why GAP Insurance Matters for New Car Buyers
So why is GAP Insurance beneficial to new car buyers?
Here are several factors to consider when considering a form of Guaranteed Asset Protection for your new car.
Rapid Car Depreciation: New cars lose value quickly, with most cars depreciating by 15% to 35%* within the first year of ownership. In the event of a total loss, comprehensive motor insurance policies typically cover only the car's actual cash value, potentially leaving you with a significant financial gap.
High Loan Balance: New car loans (HP or PCP) often have larger balances and longer terms than used ones, increasing the risk of a financial gap if the car is declared a total loss.
Leasing Requirements: Most leased vehicles are new. As part of the lease agreement, you are liable for the lease settlement if the car is written off during the term.
Replacement Cost: New car Vehicle Replacement GAP insurance can cover the cost of replacing your vehicle with a brand-new model, providing peace of mind and financial security.
The desire to have a new car: You have taken delivery of a new car. You are the first owner. No one else has used that car before you. If you only get a settlement from your motor insurer for a used car (your market value settlement), it can leave you in a dilemma.
Reasons why you may not want GAP Insurance on a new car .png "car accident, car fire, car theft")
You have a 'new for old' replacement cover with your motor insurer: If your motor insurer writes off your vehicle in the first year, they will provide you with a brand-new replacement vehicle. More on this below.
You are not concerned with getting another brand new car: You are happy to use the comprehensive motor insurers market value settlement to sort out any finance and replace your car with a second-hand vehicle.
You have sufficient savings and funds available that you do not need the added protection of GAP Insurance: You are one of the lucky ones!
New for old replacement cover with your car insurance - no need for GAP cover?
The argument that you do not need GAP Insurance coverage in the first year of a new car is quite common. You will see it brought up by well-meaning members on internet forums and 'well-informed' journalists who provide such advice on expert' Consumer Champions'.
So are they right? Yes, but only partly.
There are several further points to consider.
Not all motor insurers offer new car replacement cover: You need to check with your insurer to see if they do. And even when they do……
Replacement car cover comes with terms and conditions: Any issues may deem your claim ineligible for new car replacement with your motor insurer. These can include-
- The vehicle is on a PCP or HP deal with your motor insurer
- There is no replacement vehicle available within a set time frame
- You are not the first registered keeper (it is a pre-reg)
- You are not the registered keeper at all (as is the case on a lease)
- You intend to own your vehicle for more than one year.
Can you get GAP Insurance after you have owned the vehicle for one year?
Many guides advising that you do not need to get GAP Insurance in the first year indicate you can get coverage at the end of that period. However, the reality is that not all GAP Insurance providers allow you to buy cover after a year has elapsed, certainly not for the top levels of cover.
Many GAP Insurance providers only let you buy a Return to Invoice or Vehicle Replacement GAP within a fixed, maximum timeframe from getting the vehicle. This is often only 90-180 days. If you leave it for 12 months, you cannot get these products suited for new car purchases.
So what is the answer?
Some GAP Insurance providers will allow you to secure your GAP coverage by deferring the start date until the first anniversary of your ownership ends. This means you are covered by your motor insurer in year one, and then your GAP Insurance takes over at the beginning of year two for a further period you select.
Dangers of deferring GAP on a new car
There are a couple of aspects you should be aware of.
You are entirely reliant on your motor insurer in year one. If they write off the vehicle and, for whatever reason, they do not provide a new car as a replacement, you have no GAP Insurance to fall back on.
If your motor insurance renews before the end of year one, you could find your renewed cover does not have a new vehicle replacement cover. If your GAP Insurance does not start until the beginning of year two, this could leave you with a period of vulnerability.
If you are considering relying on your motor insurer for a new car replacement in year one, please thoroughly check their terms and conditions. If you are in doubt, it may be worth having a GAP Insurance policy running from the start. That way, if your motor insurer does not provide a new replacement, then you can top up with your GAP policy.
New car replacement on a lease vehicle
Leasing a new car is one of today's most popular car finance options. We have seen customers look to take advantage of the 'new car replacement' feature on their comprehensive vehicle insurance, but this could be a mistake.
Most car insurers have a clause stating that you must be the first registered keeper and owner of the vehicle to qualify for a new car replacement.
This is not the case on a lease.
Also, the leasing company would have to agree to any replacement vehicle, as the one named on the lease is their property. It may be the case that they simply want the lease paid off.
A new car replacement cover sounds excellent and may work well for you. However, you must check the terms and conditions and consider if it presents too much risk for you.
GAP Insurance for new cars - in conclusion
In conclusion, the UK's new car market presents various car finance options, including car leasing, that require consideration of insurance policies to ensure financial security.
Total loss protection, such as car GAP insurance, can be invaluable in the event of vehicle theft or accidents, as a simple market value settlement can leave a shortfall on a financial settlement and a strain on your finances in general.
New Car buyers should be aware of leasing requirements or car loan terms, as well as the rapid depreciation of new car value, which can significantly impact car ownership costs.
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Staying informed about guidelines and recommendations from authorities like the Financial Conduct Authority and the Association of British Insurers can help you make well-informed decisions regarding automotive finance and insurance in the face of potential total loss events.
By considering these factors and comparing GAP policy premiums, you can confidently navigate the UK car market and safeguard your investment in your new vehicle.
Published 16/5/23, written by Mark Griffiths
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