The trouble with any form of Gap Insurance is that drivers are simply unaware of how important it is. This easy to read explanatory article has been written to help you to understand the importance of Finance Gap Insurance, avoiding the stereotypical insurance jargon.
Finance Gap Insurance, also known as Contract Hire Gap Insurance only applies to a vehicle which has been bought under a financial agreement, such as, contract hire, hire purchase or a lease purchase.
In the most simplistic explanation, Finance Gap Insurance is designed to allow the driver to walk away from a finance agreement with no liability if in the unfortunate case the vehicle is written off. When taking out a finance agreement for a vehicle, the only concern the driver involved has is ultimately paying the agreement off after the end of the agreed period.
When taking out a finance agreement, the majority of drivers are unaware that if in the unfortunate case the vehicle is written off, even if it through no fault of their own, they are still responsible for paying off the agreement.
For illustration purposes, Barry has bought a Honda Civic under a finance agreement which requires Barry to pay £200 for the next 24 months. However as a result of poor motorway maintenance, 12 months down the line, Barry is involved in an incident which writes his vehicle off, but thankfully leaves him unhurt.
So Barry is in theory still liable for 12 months of £200 payments, totaling £2400. Barry’s comprehensive insurer pays him £1200, leaving the outstanding £1200 still under Barry’s liability.
This is where Finance Gap Insurance comes into play. This policy would essentially pay Barry the remaining £1200.
Barry is now free from any financial liability.
Please note: Finance Gap does not reimburse any financial penalties which are as a result of late payments that occurred before your vehicle was written off.
Please note: Finance Gap cannot protect a loan shortfall if the agreement is not linked to a vehicle. For example, if it is instead linked to a Bank or a Personal Loan.
Please note: If your finance agreement involved you paying a large deposit, or if instead you paid for your vehicle by cash, this form of Gap Insurance is not for you.
Please consider Return to Invoice (RTI) or Vehicle Replacement Gap Insurance.
Again in the most simplistic terms:
Return to Invoice returns you to the original invoice price you paid for your vehicle if in the unfortunate case your vehicle is written off. If your comprehensive insurer pays you £10,000 and you originally paid £20,000 for your vehicle, then this policy would bridge the gap and pay you the outstanding £10,000.
Vehicle Replacement replaces your vehicle if in the unfortunate case your vehicle is written off. If you paid an invoice price of £20,000, and are informed that it has increased to £25,000, and your comprehensive insurer only pays you the £10,000, then Vehicle Replacement would pay you the outstanding £15,000 you need to purchase a vehicle of the same age, mileage, condition as you originally bought.