GAP insurance for financed vehicles...question for you!

[Bigruss2006]

Hi all,
Wonder if anyone can help?

If you purchase a vehicle on finance (something im just thinking about), and take out suitable GAP insurance, what would happen in the following scenario:

Finance taken out over 4 years with "knee cap" finance company.co.uk!!

2 years into term car still owes 5K on finance and is written off,

Book value of car is 5K,

Insurance pays out book value of 5K to owner of vehicle................

Who pays the finance company back??? GAP insurance or vehicle owner???

i.e. if the owner has to pay back all the finance using the insurance money, is he left with absolutely nothing after paying the finance for two years??

Confused!! I am!!

Any help in making the right decision welcomed.
Thanks in advance
Russ

[SurfandProtect]

Hi all,
Wonder if anyone can help?

If you purchase a vehicle on finance (something im just thinking about), and take out suitable GAP insurance, what would happen in the following scenario:

Finance taken out over 4 years with "knee cap" finance company.co.uk!!

2 years into term car still owes 5K on finance and is written off,

Book value of car is 5K,

Insurance pays out book value of 5K to owner of vehicle................

Who pays the finance company back??? GAP insurance or vehicle owner???

i.e. if the owner has to pay back all the finance using the insurance money, is he left with absolutely nothing after paying the finance for two years??

Confused!! I am!!

Any help in making the right decision welcomed.
Thanks in advance
Russ

Hi Russ,

It would depend on the type of GAP Insurance policy that the customer purchased. There tends to be three main forms of GAP Insurance. (Finance / Invoice / Replacement).

I'll explain each policy individually referencing the scenario you describe.

Finance GAP Insurance would cover the difference between your Motor Insurance Payout and the amount required to settle the finance agreement (Hire Purchase Finance Agreements secured on the vehicle that is - Personal Loans do not normally qualify for Finance GAP Insurance).

In your scenario you refer to the market value of the vehicle (the payout from your insurance) and the finance agreement settlement figure both being £5,000. If this is the case, or if the finance agreement settlement figure is less than the payout you receive from your motor insurance then there is no shortfall for the GAP Insurance to pay and as a result Finance GAP Insurance would pay nothing. However, lets say the market value payout from your car insurance was £5,000 but the settlement figure was £5,500... the Finance GAP Insurance would pay the £500 shortfall.

With most Finance GAP Insurance policies the payout is not made to the customer, but instead directly to the Finance Company (with the customer being liable to pay the amount they received from their motor insurance to the finance company).

Granted if you did this you wouldn't have any cash lump sum to put forward to the new car but neither would you have the liability of having to continue paying for a car you no longer own.

In your scenario you don't mention what the original dealer's purchase price of the car is/was. Just for the sake of nice round figures lets say it is/was £10,000.

Invoice GAP Insurance would cover the difference between your Motor Insurance Payout and this £10,000 original purchase price of the vehicle.

Invoice GAP Insurance is also normally a cash payout to you, therefore if your car was written off and as you say, the market value payout was £5,000, the invoice GAP Insurance would pay you the £5,000 difference between the market value payout and the £10,000 original purchase price. Obviously then with a £10,000 cash lump sum in your pocket you can afford to settle any remaining finance and put the money you have left over towards the cost of the new car.

Replacement GAP Insurance (normally only available to cover brand new cars at first registration) covers the difference between your Motor Insurance Payout and the cost of replacing the car New for Old to the same or nearest equivalent specification at the time of claim - EVEN if the replacement vehicle is more expensive than the price you originally paid.

Therefore with this policy, let's continue with the assumption that the car was originally purchased for £10,000 and was written off after two years, but when you go back to get a quote for replacing the car for whatever reason the purchase price has now increased to £11,000... the Replacement GAP Insurance will also payout that extra £1,000 and once again with this combined lump sum in your pocket you can afford to settle any remaining finance on the old car and have funds remaining to put towards the new car.

I hope this explanation helps and I would be more than happy to answer any additional questions if you have some.

In the meantime there is a useful tool at http://www.surfandprotect.com/motor/gapinsurance/examples.asp which you can use to generate examples on how Finance and/or Invoice and/or Replacement GAP Insurance could possibly benefit you should your car be written off. Obviously this is tailored towards our specific policies but Finance/Invoice/Replacement GAP Insurance policies tend to work in a similar manner regardless of where you purchase them from so should at least help with an indication of which policy may be the best for you.

Obviously you should read the Terms and Conditions of any Insurance Policy carefully before purchasing in order to ensure that it is right for you.

Kind regards

David

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