Insurance Gap Insurance

[mwitha]

Hey,

I bought my Type S on a PCP... so will be paying for 3 years. The dealer managed to worry me about the whole shortfall of insurance covering my car if something should happen. And that each airbag cost £500 to replace etc etc so its easily written off.

Since I'm paying on finance he said the gap insurance is definatley worth it. He quoted me £395 for the Honda gap insurance. However I've managed to fit it online for £125 on websites like...

Gap Insurance by Click4Gap
http://www.shortfallcover.co.uk/

Does anyone have any advice on this? Are their any hidden T&C's I should look out for?

I basically just want piece of mind that if something happens I can get my car back, because I've worked so hard to get this one I doubt I'd be able to do it again for a long time!

Thank you!

[NH Dan]

Originally Posted by mwitha

Hey,

I bought my Type S on a PCP... so will be paying for 3 years. The dealer managed to worry me about the whole shortfall of insurance covering my car if something should happen. And that each airbag cost £500 to replace etc etc so its easily written off.

Since I'm paying on finance he said the gap insurance is definatley worth it. He quoted me £395 for the Honda gap insurance. However I've managed to fit it online for £125 on websites like...

Gap Insurance by Click4Gap
http://www.shortfallcover.co.uk/

Does anyone have any advice on this? Are their any hidden T&C's I should look out for?

I basically just want piece of mind that if something happens I can get my car back, because I've worked so hard to get this one I doubt I'd be able to do it again for a long time!

Thank you!

GAP insurance is definately worth buying, especially if you are buying a new car on finance, mainly due to the greater potential shortfall IF your car gets written off/stolen unrecovered.

As to whether Honda GAP is better or worse than any other well ,as you say thats down to the product. Cheapest isnt always best and most expensive isnt always best either.

Some products cover excess payments, some cover dealer fitted accesories etc whilst others don't. The easy answer is to run through the T&C's - which by law anyone quoting you has to provide, so you can make up your own mind whats best for you.

[Coldwarkid]

Get it from the dealer but don't pay the dealer price.

[Krysten CTR]

Two versions out there to confuse everybody. Lets say your £16,000 car is written off at £8000 and you owe £10,000 on finance.

1)GAP - Financial shortfall.

Does exactly that. In this case you get a £2,000 payout to cover it. No car but no debt either.

2)GAP - Return to Invoice (RTI).

In this example you'll get a payout of £8,000 (minus the £2,000 you owe to finance). £6,000 towards the next motor.

The only issue I see is if you have only had the car three months and you borrowed the whole amount. If you owe more than the invoice price (eg £18,000) then RTI is useless as you will still owe £2,000.

My local dealer does a combined version. It'll cover the negative equity over the invoice price for you or the invoice price of £16,000 whichever works in your favour. AND even pays the excess as well up to £250.

[Pottsy]

You'll see a few other threads on this if you click here.

[R GT]

Just tell the dealer that you found the same product online at the stated price but check to be sure it is the same level of cover etc. they will then reduce the price of their product to around £199 pounds then try it on and get them to throw in some rubber mats or something to cover the additional loss on your part and they have a sale. this worked for me as they know the product is heavily overpriced. if they dont budge buy online and save a packet then buy lots of mats etc with the savings. most products come from the same sources so you cant really lose if the level of cover is the same. good luck

[SurfandProtect]

Originally Posted by Krysten CTR

Two versions out there to confuse everybody.

1)GAP - Financial shortfall.

2)GAP - Return to Invoice (RTI).

To confuse people even more, there are actually more than two types.

They're all subject to terms and conditions and you wouldn't necessarily be eligible for all of them, but here's a very brief synopsis of the cover provided by each type:

• Finance GAP Insurance

Pays the difference between motor insurance payout and amount outstanding on finance (if any)

• Contract Hire GAP Insurance

The same as Finance GAP Insurance, but specifically for vehicles which are the subject of a Contract Hire / Lease Agreement

• Invoice GAP Insurance

Pays the difference between your motor insurance payout and the original cash price paid for the vehicle.

• Retail Value GAP Insurance

Pays the difference between your Motor insurance payout and what was the retail value of your vehicle (according to Glass' Guide) on the day you purchased the Retail Value GAP Insurance policy.

• Replacement GAP Insurance

Pays the difference between your motor insurance payout and the equivalent cost of replacing the vehicle new-for-old at the time of claim - even if the replacement vehicle costs more than the price you paid for the vehicle originally.

Regards

David

[DarrenN]

Originally Posted by SurfandProtect

To confuse people even more, there are actually more than two types.

They're all subject to terms and conditions and you wouldn't necessarily be eligible for all of them, but here's a very brief synopsis of the cover provided by each type:

• Finance GAP Insurance

Pays the difference between motor insurance payout and amount outstanding on finance (if any)

• Contract Hire GAP Insurance

The same as Finance GAP Insurance, but specifically for vehicles which are the subject of a Contract Hire / Lease Agreement

• Invoice GAP Insurance

Pays the difference between your motor insurance payout and the original cash price paid for the vehicle.

• Retail Value GAP Insurance

Pays the difference between your Motor insurance payout and what was the retail value of your vehicle (according to Glass' Guide) on the day you purchased the Retail Value GAP Insurance policy.

• Replacement GAP Insurance

Pays the difference between your motor insurance payout and the equivalent cost of replacing the vehicle new-for-old at the time of claim - even if the replacement vehicle costs more than the price you paid for the vehicle originally.

Regards

David

Just found this from a search... very good information. I never knew there was that many difference's and it seems like the Finance one is perfect for those who buy their cars on PCP like I am. I was looking on other gap sites and they never mention this they only offer back to invoice and replacement gap and I could not quite see how either of those worked well for PCP.

I am heading on your site now to see what a quote is like for the Finance one as know that the full PCP including interest etc... would be paid off is a nice thing to know.

[SurfandProtect]

Originally Posted by DarrenN

Just found this from a search... very good information. I never knew there was that many difference's and it seems like the Finance one is perfect for those who buy their cars on PCP like I am. I was looking on other gap sites and they never mention this they only offer back to invoice and replacement gap and I could not quite see how either of those worked well for PCP.

I am heading on your site now to see what a quote is like for the Finance one as know that the full PCP including interest etc... would be paid off is a nice thing to know.

DarrenN,

I'm glad I could help, although I should point out that whether Finance GAP Insurance is "perfect" (your words) for a vehicle purchased by way of a PCP (or indeed any secured finance) agreement depends entirely on the construction of the finance agreement.

I'll try to explain it here, but I'd also be very happy to discuss it with you over the phone which is a little easier. If you want to do this, please give me a call (the phone number is displayed on our website).

I apologise in advance for the length of this post... there's no quick and easy explanation I'm afraid...


In the first instance, you need to be aware that Finance GAP Insurance is a depreciating level of cover. That is to say that, with every single monthly repayment you make against your 'loan' the amount outstanding on the loan obviously decreases.

Therefore, Finance GAP Insurance (paying the difference between your motor insurance payout and amount outstanding on finance) will pay out less (possibly nothing - E.g. if your outstanding amount on finance reduces quicker than your vehicle value depreciates), the longer you have the policy without a claim.


Compare this to Invoice GAP Insurance which (paying the difference between your motor insurance payout and the original price you bought the vehicle for) pays out more, the longer you have the policy without a claim. This is because whatever happens, the original price you bought the vehicle for remains the same, whilst your vehicle's value continues to depreciate each month - subsequently the "gap" gets bigger as time goes by.


The principal difference between the two policies is that at some point (possibly right from the very start, possibly after a period of weeks or months) your settlement figure on your loan will be less than the original invoice price that you bought the vehicle for... take for example your very last repayment on the PCP agreement (the GFV)... if your vehicle was written off after you had made the 2nd to last repayment but before you had made that last repayment, your settlement figure would be... that last repayment amount.

Now... stick with me here... lets assume that your finance company has been absolutely spot on and their guaranteed future value (the last repayment) is exactly the value of the vehicle at that time, your motor insurance company agrees and offers that amount as the write off value of your vehicle, which you accept...

Your motor insurance company pay out in this example was sufficient enough for your finance agreement to be settled in full. Finance GAP Insurance therefore has no shortfall to pay and subsequently pays you nothing.

Invoice GAP Insurance on the otherhand, pays out the difference between your Motor Insurance payout and the original invoice price you bought the vehicle for, so, subject to the claim limit of the policy, you get back the full invoice price of the vehicle (the GAP and Motor Insurance payout combined), settle the final repayment and have a rather tidy sum left over to put towards the replacement vehicle.

Of course, it's never quite as simple as that and I by no means infer that it is, but I'm hoping you can see the fundamental difference between the two policies.


Another comparison to do is this...

Within your Finance Agreement there'll be a section discussing early settlement (or "termination" as it's sometimes referred to).

Normally your finance agreement will show you in advance, 3 separate figures based on you settling the agreement early. Normally the terms and figures quoted are:

• The settlement figure after 1/4 of the term
• The settlement figure after 1/2 of the term
• The settlement figure after 3/4 of the term

Have a look at each of these figures on your finance agreement and if the figures are less than the invoice price paid for the vehicle then it generally means that Invoice GAP Insurance would be a "superior" (in so much as the amount of cash it will pay out) policy.

For example, if you bought a vehicle for £10,000 and your settlement figure after 1/4 of the term had expired was £7,000, the Finance GAP Insurance pays out only up to the £7,000 (if there was a shortfall) whilst the Invoice GAP Insurance pays out up to the £10,000.


A little confusion rears its head when you start to look at finance agreements with no (or very little) deposits being put down and/or high interest rates being charged. In such circumstances it is possible for the settlement figure of the loan, in the very early days, weeks or even months (depending on how much you've been bent over the barrel with regards to the interest rate - if you'll pardon the expression) to be higher than the actual invoice price you bought the vehicle for.

In which case Finance GAP Insurance for a short term, would technically be a "better" policy than Invoice GAP Insurance, until such time that the outstanding amount on finance has reduced (through your payments) to be less than the original invoice price paid for the vehicle - after which Invoice GAP Insurance becomes superior.

There are now combined Invoice and Finance GAP Insurance policies available in the UK that pay the difference between either the original invoice price paid for the vehicle or the finance agreement settlement figure - whichever is the greater - providing a solution to the scenario described in the paragraph above, however whether or not they provide any additional advantage whatsoever again depends very much on the structure of the vehicle purchase.

For example, regardless as to how the vehicle has been funded, if the vehicle is brand new, most motor insurance companies will replace a vehicle new-for-old if it is written off within the first 12 months of its life. If this happens, you merely continue paying for your finance agreement as you did previously and it doesn't matter therefore, that for a period of time at the beginning of that 12 month period you may have been in a position whereby the settlement figure was more than you bought the vehicle for.


Now I've obviously discussed Finance and Invoice GAP Insurance policies above, therefore in the interest of clarity I should probably explain how both Retail Value GAP Insurance and Replacement GAP Insurance deviate slightly from what I've said above.

In the case of Retail Value GAP Insurance, if your vehicle is currently worth more than the price you're paying for it, with this GAP Insurance policy you can cover up to the amount the vehicle is worth (in the case of our policy, according to Glass' Guide) rather than the lower price you're paying for it.

In the case of Replacement GAP Insurance, the price you bought the vehicle for and the amount it was worth when you bought it, are to some extent, academic because the policy pays out (subject to the claim limit) up to the cost of replacing the vehicle new-for-old at the time of claim.


Also in the interests of clarity, I should point out the following, in order that I don't waste anyone's time looking:

• Our Finance, Invoice, Retail Value and Replacement GAP Insurance policies are separate standalone policies. We do not offer a combined policy (as referred to above).
• Our Finance GAP Insurance policy is NOT available for a vehicle funded by any means other than a straightforward (E.g. no balloon or residual value payment) Hire Purchase Agreement secured on the vehicle.

I hope I've provided more clarity than I have raised questions.... if anyone has any questions on this subject I'd be more than happy to receive them.

Regards

David

[DarrenN]

Thanks for that mate... I have spent some time last night searching the web and found a place that does combined RTI with Finance GAP. Seems like a very good deal to me, and the price was also good.

Basically you get either the RTI value if the car finance (left to pay) is less than the invoice price when the car is written off meaning you would probably get some £££'s in your pocket... OR you get the finance paid off if you owe more than the RTI, obviously you get no £££'s in your pocket but you also have no negative equity debt.

Seems like a very good package deal to me... its a shame you do not offer a package like that... or if you do I could not see it on your site!?!?!

[SurfandProtect]

Originally Posted by DarrenN

Thanks for that mate... I have spent some time last night searching the web and found a place that does combined RTI with Finance GAP. Seems like a very good deal to me, and the price was also good.

Basically you get either the RTI value if the car finance (left to pay) is less than the invoice price when the car is written off meaning you would probably get some £££'s in your pocket... OR you get the finance paid off if you owe more than the RTI, obviously you get no £££'s in your pocket but you also have no negative equity debt.

Seems like a very good package deal to me... its a shame you do not offer a package like that... or if you do I could not see it on your site!?!?!

No, we don't offer the combined policy.

Before committing to the other policy though, consider the structure of your finance agreement... the cash price of the vehicle, the amount (if any) deposit going down and of course the term and interest rate applied... if it is NOT likely that you will, at any given point during the finance term, be in a position where the settlement figure is greater than the original invoice price of the vehicle, then the combined policy is NOT required. (If you want to PM me your finance agreement details I'll look at it for you).

To clarify... if your vehicle is written off two months in, your settlement figure on the PCP agreement is NOT going to be the figure displayed as the "Total Amount Payable" on your loan. Your settlement figure, very roughly speaking, (your finance company will confirm any such figures if you pose the hypothetical scenario to them) would be calculated as the amount of money you borrowed, plus two months of interest, plus a penalty fee for settling early and then less the two payments you'd already made. (Again in reality it's not quite as simple as that because there's generally more interest to pay per month in the earlier months than there is in the latter months, but you can hopefully see the general point I'm making is that you're only liable for the "Total Amount Payable" (which will almost always be more than the original price paid for the vehicle) if you take the entire duration of the finance agreement to repay the money back to the finance house)

If the combined policy is NOT required (E.g. Invoice GAP Insurance, will always leave you with £££'s in your pocket after settling your finance), you may still apply our price promise against them in relation to our Invoice GAP Insurance policy and get our Invoice GAP Insurance policy cheaper still.

Regards

David

[DarrenN]

Sorry... but I can not see how an Invoice GAP Insurance will always leave you with the £££'s in your pocket? I think I am confused.

You buy say car for 19k (invoice price) You pay £1,900 deposit leaving £17,100 on finance, This agreement means with Interest you pay back say £22,000.

You drive out of the dealership and write the car off within say a day... you would owe 22k to the Finance company... yet back to Invoice would only give you £19, where does the other 3k come from to clear the finance??

With a combined one... it is clear that the finance would be paid in this situation, however in an Invoice one I can not see how it would work.

Please can you explain? And to be honest its only £10-£15 more to have the combined one, where I feel more peace of mine might be felt?

[SurfandProtect]

Originally Posted by DarrenN

Sorry... but I can not see how an Invoice GAP Insurance will always leave you with the £££'s in your pocket? I think I am confused.

You buy say car for 19k (invoice price) You pay £1,900 deposit leaving £17,100 on finance, This agreement means with Interest you pay back say £22,000.

You drive out of the dealership and write the car off within say a day... you would owe 22k to the Finance company... yet back to Invoice would only give you £19, where does the other 3k come from to clear the finance??

With a combined one... it is clear that the finance would be paid in this situation, however in an Invoice one I can not see how it would work.

Please can you explain? And to be honest its only £10-£15 more to have the combined one, where I feel more peace of mine might be felt?

Ok... let me try to explain....

What you're suggesting in your post above is that at any given point during the term of your finance agreement, you're going to be liable to the finance company for £22,000 because this is the amount that you agreed to pay back to them.

This would be correct in the case of a Contract Hire/Lease Agreement were you would have agreed to pay back a certain sum of money regardless.

However, this is not the case with an HP Agreement governed by the Consumer Credit Act. Instead, if you settle such a finance agreement early, you're only liable for the interest & charges on the amount of money you borrowed, over the amount of time you took to repay that money... or... in lay-man's terms... you get a rebate for settling early.


Taking your example to its utmost extreme (assuming the vehicle is brand new and the finance agreement is over 48 months and each and every monthly repayment is exactly the same) this would be the case:

1. Invoice price of vehicle = £19,000
2. Deposit paid = £ 1,900
3. Balance Financed = £17,100
4. Total amount payable = £22,000

From the figures above, I need to know what the monthly repayment is, what the total amount of interest and charges is, and how much of the monthly repayment itself is consumed by interest and charges. So...

• (4) - (2) = £20,100.
• £20,100 divided by 48 = £418.75 (the monthly repayment)
• (4) - (1) = £3,000 (total amount of interest and charges)
• £3,000 divided by 48 = £62.50 (the monthly interest & charges amount)

This means that each of the monthly repayments of £418.75 will incorporate £62.50 of interest and charges.

Note here that normally the early monthly repayments will incorporate a larger amount of interest and charges than the latter repayments... I'm using flat figures to demonstrate the basic principle.

So you take delivery of the vehicle and you write it off the day after...

In the first instance, your motor insurance company, if they are paying out a market value and not replacing the vehicle new-for-old, are going to be hard pushed to offer you any less than the full £19,000 paid for the vehicle (with the exception of possible minor exclusions e.g. Delivery fees and RFL etc), but lets say they offer £18,000.00

Your finance agreement settlement figure in the meantime will be based on you having had the money for less than one month... so lets assume they charge you a whole month's worth of interest:

• £17,100 + £62.50 = £17,162.50

There's then usually a penalty fee for settling early (after all, you're not going to be paying them back the original amount you agreed to, so they're going to penalise you for it). Normally the penalty fee would be the equivalent of 3 months worth of interest (this can vary).

• £62.50 x 3 = £187.50
• £17,162.50 + £187.50 = £17,350.00

But what about the fact that the £62.50 is not actually likely to be £62.50 in the earlier months (as referred to above) but instead is likely to be a higher figure that reduces each month... (your finance company will be able to confirm exact figures)

Well... let's throw the boat out and assume (the very unlikely scenario) that they're going to charge you an additional whole 12 months of interest (note that'll be 16 months worth of interest - in this example - that you're being charged for having had the money for less than one month!!):

• £62.50 x 12 = £750
• £17,350.00 + £750.00 = £18,100.00

But wait... by the time all the to'ing and fro'ing has been done, values agreed, offers accepted etc etc... you've made your first repayment on the finance agreement. So your settlement figure is reduced by one month's repayment:

• £18,100 - £418.75 = £17,681.25

So... what are we left with?

• Your vehicle has been written off.
• Your finance company want £17,681.25 in settlement
• Your Motor Insurance company are paying out £18,000.00

Finance GAP Insurance
Pays you nothing. Your motor insurance payout (£18,000) is sufficient to clear the finance (£17,681.25) and you have £318.75 left over.

Invoice GAP Insurance
Pays you £1000. The difference between your motor insurance payout (£18,000) and the original price (£19,000) you bought the vehicle for. Leaving you able to settle the finance (£17,681.25) and have £1,318.75 left over.


What does this prove?
In the example above, there is no additional benefit of having a combined Finance and Invoice GAP Insurance policy as opposed to a "normal" Invoice GAP Insurance policy - they both would pay the same.




Another way to demonstrate my point that you're not liable for the whole "Total Amount Payable" unless you go the whole term, is for you to do the following:

1. Look at your finance agreement
2. Take the figure quoted as the early settlement figure based on 1/4 of the term having passed.
3. Add to that figure the total value of all the monthly repayments you would have made over that same 1/4 term
4. Add to that figure the amount of the deposit that you put down

The resulting figure will be less than the "Total Amount Payable" displayed on your agreement.

Why? Because this early settlement figure is based on you having taken only 1/4 of the term to repay the funds and will subsequently incorporate a "rebate" for settling early.


The disclaimer.
Anybody reading this post must appreciate that the figures and calculations above are based on assumptions and that depending on the nature of your finance agreement (if any), the circumstances surrounding the purchase of the vehicle, and possible exclusions in both the Motor and GAP Insurance policies, that the same result may not be achieved for every person reading this information who is considering our or indeed any other supplier's GAP Insurance policy.

It is entirely possible, although it wasn't in the example above, to find yourself in a position whereby your vehicle has been written off and your settlement figure on your finance agreement exceeds the price originally paid for the vehicle. Such circumstances would normally include, but not be limited to, little or no deposit being paid, high interest rates, negative equity from a previous vehicle and of course the example above is based on a new vehicle, a much bigger can of worms opens up when you're trying to calculate the same type of example for a used vehicle.


To sum up.
Coming back to my original reply to your post in which I mention that Finance GAP Insurance may or may not be (in your words) "perfect" and attempt to explain why Invoice GAP Insurance (or possibly others) may be more appropriate, there's a very simple method to employ in all circumstances to check...

Ask the finance company / sales person to calculate and let you know the answer to this question...

If I want to settle the finance in full within the first month, what will the settlement figure be?

If the answer is greater than the invoice price you're paying for the vehicle then generally a Finance GAP Insurance policy (in the short term) or a combined Finance & Invoice GAP Insurance policy (in the long term) would be superior to a "normal" Invoice GAP Insurance policy.

If the answer is less than the Invoice price you're buying the vehicle for, then generally Invoice GAP Insurance (whether combined or not) is the superior policy.

However...

If you've bought a brand new vehicle (or a pre-registered one with less than 500 miles) and the answer from the finance company is greater than the price you're paying for the vehicle, but less than the manufacturer's full list price for the vehicle, then Replacement GAP Insurance is potentially the superior policy.

OR

If you're buying a used vehicle (including a pre-registered vehicle with more than 500 miles) for less than it's currently worth (referring to the Glass' Guide retail value of the vehicle) and the answer from your finance company was greater than the price you're buying it for but also less than the vehicle is currently worth, then Retail Value GAP Insurance is the superior policy.


Pheww... I think that's it, hopefully, despite the maths, I've made it a little clearer now... I'm off to get a coffee.

[DarrenN]

WOW... I really appreciate you writing all that mate. Everything is very clear now and I fully understand where you are coming from. I believe that post will be useful to many people!

It's nice to see that you are putting time and error in to the forum to give information. I think I will, as you requested a few post's up, send you my finance package so you can have a look and recommend something for me - is that still okay?

Once again thanks for your time.

Darren

[SurfandProtect]

Originally Posted by DarrenN

WOW... I really appreciate you writing all that mate. Everything is very clear now and I fully understand where you are coming from. I believe that post will be useful to many people!

It's nice to see that you are putting time and error in to the forum to give information. I think I will, as you requested a few post's up, send you my finance package so you can have a look and recommend something for me - is that still okay?

Once again thanks for your time.

Darren

I hope you mean "effort" rather than "error" ?

Feel free to send me details of your finance agreement structure.

[actually, they just arrived as I'm typing this... ... looking at them now]

[DarrenN]

Originally Posted by SurfandProtect

I hope you mean "effort" rather than "error" ?

Feel free to send me details of your finance agreement structure.

[actually, they just arrived as I'm typing this... ... looking at them now]

Yeah I meant effort... haha sorry about that.

[DarrenN]

Just checked with Direct-Line and they do the Replacement for New for the first 12 months insurance... obviously this is a good thing, however GAP would still be worth getting as when that is over you will need it.

This however means that a RTI policy would actually work, because in a years time (or more than) you will obviously owe less than the finance agreement so a Finance GAP Insurance would not have any advantages and neither would a combined one.

[SurfandProtect]

Originally Posted by DarrenN

Just checked with Direct-Line and they do the Replacement for New for the first 12 months insurance... obviously this is a good thing, however GAP would still be worth getting as when that is over you will need it.

This however means that a RTI policy would actually work, because in a years time (or more than) you will obviously owe less than the finance agreement so a Finance GAP Insurance would not have any advantages and neither would a combined one.

Look at you... do you know... I always knew I should have been a teacher a couple of minutes listening to me and you've gone from being confused to educating people about GAP Insurance already... the only thing I need to do now is learn to say what I've got to say in a shorter way... (I've got face-ache from reading my own posts nevermind any others) because if I ever was a teacher I'd need a blackboard the size of the room at the moment

David