Buying a new car (or van) is a major investment for all of us, usually second in value to buying a house. Most motor insurance policies provide a replacement car of similar type if the vehicle is written off in the first 12 months – but do beware if the car has been pre-registered or ex-demo because it is then technically not new.
Most of us take out finance – PCP being the most common – or lease vehicles. However, the continuing costs of such contracts very rarely match the depreciation on vehicles, which tends to be higher in the first few years. The rate of depreciation varies between manufacturers and even between different models or trim levels from the same manufacturer. Typically, it’s around 15-35% in the first year and up to 50% over 3 years, levelling out somewhat after that.
The problem arises when a vehicle is written-off in an accident – this is increasingly common as repair costs increase – or is stolen and not recovered or – and this has been noticeable with electric vehicles, destroyed by fire. Often the value of a vehicle in insurance terms is less than any amount outstanding on finance. This can be a very significant amount.
Let’s take a moment to bore you with figures:
- Vehicle thefts increased by 61% in the period from 2015-2020 – the last period for which accurate figures are available. Keyless entry systems and the increasing sophistication of the criminal fraternity in being able to overcome security systems have been blamed for this;
- 2020 saw over 113,000 vehicles being stolen in the UK. Most of these are not recovered, either being shipped overseas, cloned or stripped for parts;
- An average of 384,000 cars are written off in the UK every year. That’s about one every 90 seconds;
What do you do if the insurance payment is less than the amount left owing on your finance of lease contract? You may have to replace your vehicle with one of lesser quality or with lower specification or – worst case – not have the funds available to replace it at all.
Thankfully, there is a solution. GAP (Guaranteed Asset Protection) insurance is a product that you can buy during the first year of vehicle ownership for anything from 1 to 5 years and basically it does what is says – it guarantees your asset. The policy pays the difference between what you still owe and what your motor insurance policy pays you. Some policies even provide a hire vehicle while you wait for the insurers to settle up.
This is unlike the usual annual insurance policy in that you pay a single premium for however many years you need a policy to run for and the cost is remarkably low – when purchased correctly. Car dealerships will often push for you to buy this cover as part of purchasing that new (or second-hand) vehicle but they generally charge a lot more than a good insurance broker will. Our experience is that we are often up to 50% cheaper. It is important that it is set up correctly from the outset so we need to know the purchase price or contract value for leasing agreements, the type of contract, deposit amount and period of cover required.
So, when next considering a major purchase, think about GAP insurance and give us a call on 01442 242400 or contact us via our website www.aicinsure.co.uk.