Guaranteed Asset Protection (Gap) insurance is more “relevant” for people who are buying a new car as opposed to a second-hand one, Auto Trader magazine has said.
Tom White, a spokesperson for the magazine, said that people considering buying a new car should look around for the most competitive Gap insurance deal.
“We’d always recommend some element of price comparison, but also benefits comparison – there are a number of different Gap type products so cover will vary considerably,” he commented.
Mr White noted that this type of insurance is more important for new and expensive cars, adding that it is therefore not an important consideration for all drivers.
According to the AA, the average car loses around 40 per cent of its value by the end of the first year.
By the end of the third year the average car will have lost around 60 per cent of its value if its owner drives about 10,000 miles a year.
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GAP Insurance is of course relevant for a New car, but not necessarily moreso than a second-hand one.
Of course a New car will indeed (in theory at least) depreciate at a greater percentage rate (of the value it was purchased for) than a second-hand car, but whether the car you purchase is New or Second-hand it will almost always continue to depreciate.
With products like http://www.surfandprotect.com’s AXA underwritten Invoice GAP Insurance policy available, which in the event of the vehicle being written off, will pay the difference between the motor insurance payout and the price the customer originally bought the vehicle for, the theory is the same regardless as to whether the car was New or Second-hand when they bought it… the policy, at the time of claim, will cover the amount by which the vehicle has depreciated from the amount they bought it for (up to a limit which the customer specifies when they purchase the GAP policy) and pay the customer this amount on top of their motor insurance payout.
Therefore, as most vehicles will continue to depreciate as time goes by, this form of GAP Insurance, contrary to Mr White’s comments, should indeed be an important consideration for all drivers.
Of course in determining whether GAP Insurance is more relevant or not, you can’t simply base it on whether the car was New or Second-hand… you also have to consider what the motives of the individual are. For example we often speak to customers who simply want to ensure that if their vehicle is written off they will be able to clear any outstanding finance secured on the vehicle at that time - a liability that would theoretically be “covered” by Finance GAP Insurance.
Whether a vehicle is New or Second-hand, if the individual was to secure a reasonable discount and/or put down a healthy deposit (all subjective of course, but the greater the discount and/or deposit the “better”), there’s the very real possibility that there would be no negative equity - E.g. the motor insurance payout in the event of any write-off, may well be sufficient enough to clear any outstanding finance - in which case there’d be no shortfall for Finance GAP Insurance to pay.
To sum up, to say that GAP Insurance is more relevant for New vehicles than Second-hand vehicles is simply too simplistic a view… there are a number of different versions of GAP Insurance on the market now.
Some GAP Insurance policy types are indeed more beneficial for New vehicles, some even restricted so that you can only purchase them if the vehicle you are purchasing is New, however there are plenty that can be more relevant or indeed less relevant depending not only on whether the vehicle is New or Second-hand, but also on the circumstances surrounding the purchase of the vehicle… including but not limited to, the purchase price of the vehicle, whether the vehicle was purchased with cash outright or whether it was financed and, if it was financed, what type of finance agreement it was.
Regards
David Burns-Keane
Surf and Protect Ltd
http://www.surfandprotect.com