If you are unfortunate enough to write-off your vehicle completely, or it is stolen, you could be left out of pocket when it comes to making an insurance claim. Fortunately, there is insurance cover that can help.
GAP Insurance is an acronym for ‘Guaranteed Asset Protection’ and it covers the financial gap between the actual cash value of a vehicle and the outstanding balance on a loan or lease.
When you make a total loss claim, (also known as a “write-off”) or a claim for a stolen vehicle, the insurance tends to only pay the current market value for your vehicle. The current market value is the value of the vehicle on the open market if you were to sell it on that day. This will not necessarily be the same amount as the value or price of the vehicle when you initially bought it, or the value that is stated on your insurance policy documents. This is because the value of a car will usually depreciate over time. After three years, a typical van will drop to around 30 per cent of its original new value1. So, this amount could be far less than you need to purchase a similar vehicle and may not be sufficient to cover the remaining balance on a loan or lease agreement.
GAP insurance helps to bridge the “GAP” between the actual cash value of the vehicle and the outstanding loan or lease balance.
When is it required
Investing in GAP insurance coverage for couriers can be beneficial in several situations:
- Loan or lease with a high balance: If you have a substantial outstanding balance on your loan or lease, the GAP between the vehicle’s actual cash value and the remaining balance is more significant. In such cases, having this insurance can protect you from being financially responsible for the remaining debt if the vehicle is declared a total loss.
- New or expensive vehicles: If you are driving a new or expensive vehicle for your deliveries, the vehicle’s depreciation rate may be faster than the rate at which the loan or lease balance decreases. In the event of an accident or theft, the primary auto insurance coverage might not be enough to cover the outstanding balance. GAP insurance can bridge that GAP and prevent you from being burdened with the remaining debt.
- High-risk areas or job nature: If you operate in an area with higher accident rates or encounter a greater risk of theft or vandalism, the likelihood of a total loss incident is increased. In such circumstances, having this insurance can provide an added layer of financial protection and peace of mind.
- Financing with a small or no down payment: If you finance your vehicle with a small down payment or no down payment at all, the initial loan amount will be higher than the vehicle’s value. GAP insurance can be particularly valuable in these cases, as the GAP between the loan balance and the actual cash value will be substantial.
Types of GAP Insurance
There are primarily three types of GAP insurance coverage available:
Finance GAP Insurance
This is the most common type of GAP insurance and is designed for individuals who have financed their vehicles with a loan. Finance GAP insurance covers the difference between the actual cash value of the vehicle at the time of a total loss incident (such as an accident or theft) and the outstanding balance on the loan. It ensures that the courier is not left with the remaining debt after the primary auto insurance pay out.
Lease GAP Insurance
This type of GAP insurance is specifically tailored for individuals who have leased their vehicles rather than purchasing them. Lease GAP insurance covers the difference between the actual cash value of the vehicle and the amount specified in the lease agreement as the “GAP” or “residual value.” If the leased vehicle is declared a total loss, lease GAP insurance covers the GAP amount, protecting the courier from potential financial obligations.
Return-to-Invoice GAP Insurance
Return-to-invoice GAP insurance, also known as vehicle replacement insurance, is applicable for both loaned and leased vehicles. It covers the difference between the actual cash value of the vehicle and the original purchase or invoice price. In the event of a total loss, this type of insurance ensures that the courier receives the amount needed to replace the vehicle with a new one of the same make and model, rather than just covering the outstanding loan or lease balance.
How much does GAP Insurance cost?
It’s important to note that the availability of these insurance types can vary depending on the insurance provider and the specific terms and conditions of the policy. The cost will depend upon several factors such as the type of vehicle, its value, the insurance provider, and the duration of coverage. Generally, the cost of GAP insurance is a one-time upfront payment or a small recurring fee added to your monthly insurance premium.
When considering whether or not to invest in GAP insurance, it is important for you to evaluate your individual circumstances, including your financial situation, the value of your vehicle, and the terms of your loan or lease agreement. Consulting with an insurance provider like BCD will provide further guidance and help in making an informed decision.
Why Choose BCD for GAP insurance?
GAP insurance can be a complicated and costly endeavour. However, at BCD we believe in making it simple and cost-effective for you. Our policies are based on flexibility. We provide coverage for 12,24, 36 and 48 months, allowing you to select the length that best suits your needs. Furthermore, we provide flexible payment choices, allowing you to spread your payments over 10 or 11 months or pay in full, giving you the opportunity to choose what works best for you.
Choosing BCD means you get access to a team of professionals that are experienced in all aspects of GAP Insurance. We will take the time to understand your specific situation and recommend the appropriate cover for you, giving you the peace of mind, you deserve.
You also need to bear in mind that GAP insurance typically has specific eligibility requirements and limitations. These can include factors such as the age and condition of the vehicle, the loan or lease terms, and the coverage limits of the primary auto insurance policy. That’s why it is important to talk to us at BCD as we can ensure that you get the appropriate cover.