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What Is Gap Insurance?

Todays Date: December 15, 2018

When purchasing a car, the buyer is often inundated with optional extras and offers of insurance they “simply must have”, and always at an additional cost. Before making a purchase, it is important to know of all the extras available to you – in the case of Gap Car Insurance, it is an essential if you are paying for your car over a fixed period of time.

Whilst many car outlets mis-sell Gap Insurance, it is in fact quite simple in how it works. A person will buy a car for, say, 15k brand new and have payments set up to cover this amount over a period of time. Their comprehensive insurance will cover the car in the case of a write off, but only up to its existing value. Therefore, if the car suffers from rapidly dropping residual values, the owner will be left with quite a substantial “gap” to pay to ensure the car is fully paid for. A 20k car could be worth 12k within 2 years leaving the owner with a potential shortfall of 8k.

It makes sense then, that the GAP in GAP Insurance refers to the covering the amount that is the difference between the actual value of the car and the residual value of the car at the time of an accident. Using the example above, the policy would be out the eight thousand pounds required.

It’s an astonishing percentage of people who are actually upside down on their car loan, it is almost unbelievable. And by “upside down” I mean that they owe more on the car than the car is actually worth, and the reason for this is because of how much the value of new cars drops within the first few years. So at sometime during your lifetime, if you plan on financing a new car, which most people do, then you expect to be upside down on a car at some point in your life. Knowing that, you should know how important it would be for you to get ‘Gap’ Insurance.

Finally, it should also be noted that it is a “must” that the Gap Insurance coverage begins when you buy your car and take out long term finance on it. Most policies will be based upon the value of the vehicle at the time it’s taken out – therefore if you wait a couple of months before getting covered, you may already have suffered some dropping residual value and still be faced with a large bill to foot in the event of an accident.

ALA.co.uk offer GAP Insurance for your car, van or motorcycle. Free transfer and cheapest prices guaranteed! Get a quote and buy online now!

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