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What is GAP insurance? and what changes have been made?

By Jodie Chay Oneill | June 10, 2024

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Gap insurance provides financial protection and peace of mind, ensuring that you won't be left with a substantial financial burden if your car is totalled or stolen

What is GAP insurance? and what changes have been made?

Gap insurance, also known as Guaranteed Asset Protection insurance, is a type of car insurance that covers the difference between the amount you owe on your car loan or lease and the actual cash value (ACV) of the vehicle in the event that it is totalled or stolen. Here's how it works:

Depreciation: Vehicles depreciate in value quickly, especially in the first few years. this means that the ACV of the car can be significantly less than the amount you owe on your loan or lease.

Total Loss: If your car is totalled in an accident or stolen and not recovered, your standard insurance policy will typically pay out the ACV of the car, not the amount you still owe on the loan or lease.

Coverage: Gap insurance covers the "gap" between the ACV payout from your standard insurance and the amount you still owe on the vehicle. For example, if you owe £20,000 on your car loan but the car's ACV is only £15,000, gap insurance would cover the £5,000 difference.

Who Needs Gap Insurance?

New Car Buyers: Since new cars depreciate rapidly, new car buyers who finance their purchase often benefit from gap insurance.

Leasing a Vehicle: Lessees often owe more than the car's worth for a significant portion of the lease term, making gap insurance beneficial.

High Loan-to-Value Ratio: If you financed a large portion of your car's purchase price with a small down payment, you might owe more than the car's worth, making gap insurance a wise choice.

Long-Term Loans: Loans with longer terms (e.g., 60 months or more) can also create a scenario where you owe more than the car's worth for an extended period.

Electric car owners: The well-publicised drop in the value of electric cars means EV owners should consider buying a policy. We asked our partners, MotorEasy, why this is the case, and here's what founder Duncan McClure Fisher said...

“Those EV owners who fear a fall in the value of their cars are right to be concerned. We’ve had several recent EV total loss claims that proved the value of GAP Insurance. Take for example Tesla. We paid out a GAP Insurance claim of over £15k on a Tesla Model 3 Performance that had fallen in value by 31% in just 20 months. This policyholder would have been severely out-of-pocket if they hadn’t had the foresight to purchase GAP Insurance. With higher repair costs for EVs, a total loss claim can happen as a result of just a minor collision, making GAP Insurance protection even more important.” 

How to Obtain Gap Insurance

There've been changes to regulation that mean many car dealers will now no longer offer GAP Insurance. 

The FCA wanted to make sure the customer is always getting a fair deal when they purchase the product, so now., only accredited third-party providers are able to provide this for you.

We've teamed up with MotorEasy as a special offer for Regit customers, MotorEasy extends a 12.5% discount when you opt for GAP insurance with them.  

What changes have been made with GAP? 

In February 2024, the FCA announced that several insurance companies had agreed to temporarily halt sales of GAP insurance at the regulator's request. 

Now, The Financial Conduct Authority (FCA) has announced that some companies are now allowed to resume selling Guaranteed Asset Protection (GAP) insurance after the regulator's intervention to enhance fair value.

To restart sales, companies must prove that their GAP products offer fair value to customers, adhering to FCA guidelines.

The FCA stated that the firms resuming GAP insurance sales are doing so with significantly reduced commission levels for sellers, thereby increasing customer value.

As a result of these changes, customers buying GAP insurance can expect better value coverage that meets their needs and improves overall outcomes.

MotorEasy is offering a 12.5% discount on GAP insurance using code REGITGAP 

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