Gap insurance is where you receive the full invoice price you paid, regardless of what it is worth at the time of the accident. For example; You paid £15,000 for your car. 18 months later it is written off. Your insurance values the car at £6,000 because it has high miles. Insurers pay £6,000 and gap insurance pays the difference £9,000. So the Toal you will receive is £15,000 for an 18 month old car. Happy days if you have gap insurance.
Should I get driving instructor gap insurance?
The answer to this question will vary depending on who is reading this. Those who aren’t risk takers and are financially comfortable enough to afford £15-£30 a month for the premium will probably see value in the insurance.
Here’s a few different scenarios for you to help you work out if Gap insurance is right for you.
Scenario 1: Car is purchased with finance/loan
Let’s say you have got the finance through the dealer. You have purchased the car for £12,000 and £11,500 is on finance.
You then have an accident 2 weeks later and the car is written off. The book value for that car is £10,000. Your insurers will most likely pay out £10,000.
Most cars lose 20% in the value once exiting the showroom.
You will need to find the remaining £1,500 quickly to pay the finance off the car, before you can take out another loan/finance deal to obtain a new car.
In this instance you would be out of pocket.
If this scenario worries you – get gap insurance.
Scenario 2: Car is purchased using PCP
I always find this quite complicated, however, PCP (Personal Contract Purchase) works more favourably for you the customer the longer you have the car. At the end of a PCP deal, you can just return the car or choose the buy the car out in full.
You can’t exit a PCP contract until the minimum agreed term which is usually 3/4 years if you are looking to keep the monthly payments down.
However, if you had an accident 2 weeks after receiving your car you would inevitably be left out of pocket like scenario one. You will need to pay up the PCP agreement and go again.
If this scenario worries you – get gap insurance.
For more information on PCP, visit Money Advice Service.
Scenario 3: Car contract hire
In this instance gap insurance wouldn’t be so necessary. As long as your insurance is correct your insurer would pay the car hire company and any shortfall would be the car hire companies concern.
Scenario 4: You buy your car with cash and you know you’ve got a great deal
This is often possible, especially in the second hand private market. So if you have bought a car that is 2-3 years old then it’s lost most of it’s money. They best way of working out what you might get if it was written off is by looking at the cheapest like for like car on auto trader and if you paid less then you could be quids in. If you had an accident 2 weeks after you have purchased the car, then you may be paid out more than the car is worth (without gap insurance).
When can you get gap insurance?
Usually within the first 3 months of purchasing a car. You will need your invoice for the car at the time you obtain a quote. Also, keep that invoice safe!
Some gap insurances don’t completely pay the whole difference
Be careful some gap insurers will only insure up to a certain gap amount. In some instances you can choose the gap amount and this will be reflective in your monthly/annual premium.
Driving instructor gap insurance misfortune
We had one driving instructor based in Clacton-on-Sea who had a terrible experience. The learner was taking their test/driving lessons in Colchester and on the day of the driving test the car was written off. The learner went into a ditch and the examiner didn’t physically intervene.
The car was just 2 months old and he was left £2,500 out of pocket after the accident.
