Why You Should Take Out Gap Insurance On a New Car

Anyone who has bought a car in recent years will be familiar with the term 'gap insurance'. When you buy a new car it is now standard practice for the dealer to try and sell you an expensive gap insurance policy and the inflated price will more often than not put the customer off. However, there are two very important points which every potential buyer of gap insurance should know.

Firstly, you do not have to buy gap insurance from the dealer at the time of purchase. There are plenty of good deals online which you should look at first before making your decision. Secondly although the extra cost may put you off, you shouldn't dismiss gap insurance. Let me tell you why.

Gap insurance is so called because it refers to the 'gap' between what an insurance company will pay out in the case of a car being written off and the amount you owe on a car. The overwhelming majority of insurance companies will only pay out the current market value of the car in the case of a total loss which, if you have had the car for two years for example, will be considerably less than you paid for it. If you have taken out gap insurance you will receive a lump sum of the difference between what the collision insurance company pays out and what you still owe on the car.

Imagine a scenario where you have bought a car on finance or with a personal loan for 15,000 paying 300 a month and 1 year in you have an accident and the car is written off. You contact the insurance company and they say they will pay you back the market value of the car, which is now only 11,000. You have made a year's worth of payments totalling 3,600 and still owe 12,400 on the car. If you have taken out gap insurance you will receive the 1400 difference between what you have received from your collision insurance company and what you still owe on the car. If you have not taken gap insurance out it will leave you having to find an extra 1400 from your own pocket to pay your finance company or bank.

So in answer to the question 'is gap insurance worth it?' you would have to say that the answer is definitely 'yes'. The best advice would be to shop around online to find the best deals as this will normally be a lot cheaper than buying from a dealer. It could be the best decision you ever made if the worst ever happens.

You can learn more about gap insurance and get an online gap insurance quote by visiting www.ala.co.uk.

Tags: Automotive, Gap insurance, Gap insurance worth it