At a time of increasing premiums and modest cover, you might be reluctant to take out any additional cover over and above that offered by a standard car insurance policy.

One type of cover that is worth considering though is Gap Insurance. As the name suggests it’s purpose is to insure the gap left by your car insurance policy pay-out. So how does this cover benefit you?

As soon as you drive a new car off the forecourt, it drops approximately 20% in value through depreciation. For example, let’s say your car cost you £10,000. As soon as it leaves the forecourt, it is now worth £8000 and your car insurance will more than likely only pay-out its value after depreciation, not it’s original cost.

What this means for you is, if your car is written off or stolen, you will only receive a pay out of £8000 which is not enough to replace your car or clear any finance used. But, if you had Gap cover for £2000, you would be able to replace the car with another of the same value as the original.

So Gap insurance helps to protect your financial investment and any outstanding debt used to purchase the car. Also known as ‘Return to Invoice’ cover, this combined with your motor insurance ensures that you have enough money to buy another car of the same value as the one that was just wrecked or stolen.

Return to Value Gap Insurance

There is another type of Gap insurance called ‘Return to Value’ cover which means if your car is written off or stolen you get the difference between your insurance payout and the current value of your car. So, if the value of your car today is £15000 and your motor cover is £11200, you have to come up with £3800 to be able to buy another car valued at £15000. A Gap cover policy pay-out of £3800, along with a motor cover pay-out of £11200 will let you to buy a car with the same value as the one that was wrecked or stolen.

One of the good features of Return to Value Gap cover is that it can be taken out for up to seven years from purchase of your car, if you bought from a dealer or private owner, whether you paid cash or assumed a loan and if have a contract hire or lease agreement. For an additional charge, you can also purchase added protection if your car is estimated to be a total loss.

» Read more: Should You Top Up Your Car Insurance With Gap Cover