Video explains what gap insurance is when you but a car using car finance. What if your car is written off and you still have finance outstanding?
“Hello there. Well, I’m under the spotlight and trying to make it a little bit more of a professional video … not really! Still unrehearsed, we still make it up was we’re going along.
The subject for this video is gap to insurance when buying a motor car. So, you’ve gone to buy a car and the salesman’s talking about gap insurance. So what’s gap insurance then?
Right, let me do this in very simplistic terms, let's say you buy a car and you take a finance agreement, a finance arrangement, you borrow the money to buy a car. You borrow from the car dealer or alternatively [you] maybe your bank offers a deal or something like that to buy a car. You can get it slightly cheaper sometimes if you go to your bankers rather than doing it through a motor trader, a dealer.
So let's say you borrow £10,000, that's all well and good, you’ve bought a car all on finance £10,000 and you're very happy and you make your payments monthly payments and everything else and six months later you have an accident or your car is stolen or something like that, or its totally written off. Your car is written off but because you put miles on your car, because for whatever reason, it’s now gone down in value because there's been a new model launched or whatever it might be and your insurance company settles at £8000 because your car is being written off but you still owe £10,000 or maybe a little bit more with the finance added or indeed it may be down a little bit lower than that.
There is a gap. So you’ve got no car, it's been written off, you've got a cheque from your insurance company for the write-off of £8000 but you still owe £9000 or £9500 or £10,000. That's what gap insurance is for. Gap insurance is literally to cover the difference between how much you have outstanding on finance for your car and if it was written off what you get back from your insurance company, your motor insurance in terms of a payout. So it covers that gap just in case there is a gap between finance and what you write off what it was what it was settled for in terms of your claim.
[So] gap insurance itself isn't that expensive. Do we recommend you take gap insurance out or not? That's a very, very difficult question to answer. It's like with any insurance it’s either you're paying a premium and you hope that you never have to claim, it is like motor insurance you pay your motor insurance and it's a necessary requirement, the Road Traffic Act, you have to have motor insurance but you hope you never have to claim on it. When you take out life insurance, you hope you never have to claim on it. It’s the same with gap insurance. In an ideal world, you pay the premium but you hope you never have to claim on it.
So, can I say to you: “don't take it out”, I can't really, I have to suggest that if the price is right for you then certainly consider gap insurance but I hope that explains what it is, it is literally if you arranged finance on your car and then you had your car written off and there was a difference between how much you owe and how much is outstanding and what your claims been settled for, it’s insurance to cover that gap. Thanks very much for watching.”