Gap Insurance
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Gap Insurance
Gap insurance is an optional car insurance policy bought in addition to a normal fully comprehensive car insurance policy. It is bought to cover the costs of negative equity arising from a car being written off and the standard insurance policy only paying out a percentage of the original costs of the vehicle.
The vehicle insurance market is the only industry which has a requirement for gap insurance. All other asset insurance policies are done on a ‘betterment’ like for like new for old basis.
This means that if for example an insured mobile phone is damaged it would be replaced by a brand new one with the closest specification; it could be argued that the owner is benefiting form claiming.
Contrary to this, if a car is written off by an insurance company, they will only pay out a percentage of what was originally paid for the vehicle leaving the claimant with negative equity and the liability of extra costs to make up the shortfall.
With gap insurance, the negative equity would be paid off leaving the owner no worse off than before they purchased the vehicle.
There are 3 types of Gap Insurance
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