GAP insurance: Return to invoice and outstanding finance

[SpeedyFrog]

Hi

Just need some clarifications.

The return to invoice cover in GAP insurances is straightforward. The car insurance pays market value and the GAP insurance covers the difference so that you get the money you paid for the car as per the invoice which means that if your trigger the GAP insurance after 15 months of ownership you get your invoice money back and you can go and buy a new car for the same price. No money loss.

However if the car is on finance e.g. PCP then the car insurance pays market value and the GAP insurance will only pay the money necessary to cover the difference up to the PCP settlement value.
Am I right in saying that with a PCP if you trigger the GAP insurance you never recover your deposit money?

Is there different types of GAP insurances with regards to that point (i.e. initial deposit when the car is on finance)?

Thank you.

 

[ChrisKnottIns]

If you buy a combined policy you get the higher of the two so on finance you'd go back to the invoice value if the gap was bigger (which it would be in the deposit scenario). Check out https://chrisknott.co.uk/GAP/CombinationGAP

 

[SpeedyFrog]

@ChrisKnottIns Thanks for your quick reply but I'm not sure it answers my question...

Return to invoice:
£40,000 -> after 15 months the car is written off -> Car insurance pays £30,000 and GAP insurance pays £10,000
I have £40,000 again and can buy the same car. Financial loss: £0

Outstanding finance:
£40,000 -> Deposit £4,000 so £36,000 financed on 4y PCP @ 400/month -> after 15 months the car is written off (£4,000 + 15 x 400 = £10,000 have been spent so far on the car) -> Car insurance pays £30,000 and GAP insurance pays £8,000 because the PCP settlement value is £38,000.
Ok I don't owe anything to the finance company however £10,000 have gone... If I want to get the same car I need to put another £4,000 deposit again!

Am I missing something?

 

[ChrisKnottIns]

Outstanding finance:
£40,000 -> Deposit £4,000 so £36,000 financed on 4y PCP @ 400/month -> after 15 months the car is written off (£4,000 + 15 x 400 = £10,000 have been spent so far on the car) -> Car insurance pays £30,000 and GAP insurance pays £10,000 because even though the PCP settlement value is £36,000 the original invoice price was £40,000 and therefore that gap was the greater.

 

[SpeedyFrog]

@ChrisKnottIns Ok I see now. It's better of course. But it still looks like a GAP insurance is much more financially effective when there's no PCP involved. I guess it's a side effect of not having monthly payments and everything paid upfront...

 

[DAN@ADRIAN FLUX]

Hi,
Just to let you know that we offer a simple product called Total Loss Protection. Whilst it's not exactly the same as your traditional GAP insurance we feel for some customers it can offer a cost effective alternative.
https://www.adrianflux.co.uk/extras/total-loss/
Regards,
Dan.

 

[EDRIAT]

A combined Finance, Invoice & Replacement GAP insurance policy is better still:

Outstanding finance:
£40,000 -> Deposit £4,000 so £36,000 financed on 4y PCP @ 400/month -> after 15 months the car is written off (£4,000 + 15 x 400 = £10,000 have been spent so far on the car). But the brand new equivalent vehicle is now £42,000

-> Car insurance pays £30,000 and Replacement GAP insurance pays £12,000

You then settle the remaining balance on your finance agreement and use the excess funds towards your next car.

 

[pablo]

whats the best plan re a Lease car?

 

[EDRIAT]

whats the best plan re a Lease car?

Assuming that by "Lease" you're referring to a Contract/Lease Hire agreement involving no contractual option to purchase the vehicle at the end of the term, you'd need a Finance/Contract Hire GAP insurance policy. In the case of a Lease, in the event of write off, the GAP insurance only aims to pay the difference between your Motor Insurance payout and the amount required to settle the remaining balance of the lease agreement. E.g. you walk away at £Zero - no car, but no finance to settle either (assuming no arrears or excess mileage charges).

Some providers will also allow you to pay a small additional premium to cover some or all of your initial down payment too.

However, GAP insurance isn't always required for a car that is the subject of a Contract Hire agreement. You need to check what your liability would be to the finance company in the event that the Motor Insurer's payout turned out to be less than their settlement figure (which would normally at least be the combined sum of what they believe the car to have been worth PLUS the balance of all outstanding rentals).

With some finance houses you'd be liable for every single penny of the shortfall (hence a need for GAP insurance) but with others you'd be liable for only some of the shortfall (I've seen one agreement for which the liability would have been just £15 per outstanding rental) and others wouldn't hold you liable for any of the shortfall (when I wrote my leased car off, there was a circa £4,000 shortfall but I was allowed to walk way without paying any of it).

 

[pablo]

so if I crash it on day 2 I basically lose my deposit? sounds like covering the deposit is a wise move then. thanks for that!

 

[EDRIAT]

so if I crash it on day 2 I basically lose my deposit? sounds like covering the deposit is a wise move then. thanks for that!

If it's written off on Day 2 (or any other time for that matter) and you had GAP insurance in place to cover all of the shortfall between Motor Insurance payout and settlement figure, then yes, in theory you'd lose the deposit. Unless your GAP insurance policy covered some or all of that deposit too.

Just to clarify... without GAP insurance... in theory, if your finance company is one that would hold you liable for the sum of all outstanding rentals that you promised to pay them over the whole duration of the lease, it's not just your deposit you'd lose if your car was written off on Day 2, you could well be needing to pay them a substantial sum above that too!

I should add that I've never seen this enforced, but I've leased various cars and the wordings on some of those contracts certainly imply that this is possible. My current lease with VWfS actually goes further and taken literally, suggests that they'd hold me liable for double the outstanding rentals at the time of write off. I have queried this with them and they've suggested it's an error in their contract wording but I pointed this out to them almost 18 months ago now and a recent contract of theirs that I saw, has exactly the same "mistake".

 

[James_TDi]

they've suggested it's an error in their contract wording but I pointed this out to them almost 18 months ago now and a recent contract of theirs that I saw, has exactly the same "mistake".

I'll keep an eye out for that when I finally sign mine.
The dealer offers GAP but I'm not sure if it covers the deposit so I need to double check that too and, if not, I'll go with one of the companies that does.

 

[EDRIAT]

I'll keep an eye out for that when I finally sign mine.
The dealer offers GAP but I'm not sure if it covers the deposit so I need to double check that too and, if not, I'll go with one of the companies that does.

I don't believe Audi dealer GAP insurance policies do offer the ability to include cover for your deposit on a Lease Agreement.

Personally, I wouldn't even consider buying from the dealer at all. You'll almost certainly pay through the nose for it and it'll almost certainly be inferior cover to that which you can get from an indpendent broker.

 

[ChrisKnottIns]

Check your car insurance policy - it should offer new for old replacement of the car in the first 12 months.

 

[EDRIAT]

Check your car insurance policy - it should offer new for old replacement of the car in the first 12 months.

Though that's not as straight forward as it might seem.

1. Most motor insurance policies that include New-For-Old cover in the first year, exclude vehicles that are the subject of a Contract Hire Agreement
2. Most GAP insurance providers require that you purchase GAP insurance within a certain period of time after taking ownership of the vehicle. Some as little as 14 days and others (though few) up to 12 months and with some the price increases the longer you wait. If you miss this deadline, depending on the provider you'll either not be able to buy GAP insurance at all OR only be able to buy a form of "Value GAP insurance" which is considerably inferior cover to that of true Invoice/Replacement GAP insurance. Forgoing GAP insurance in later years because you have cover in the first year is risky business.
   
3. Where the vehicle is financed, Motor Insurers who offer New-For-Old cover can only physically replace the vehicle if the finance company agrees and despite it clearly being in their interests to do so, many finance companies won't agree.
   
4. The eligibility criteria for some New-For-Old schemes is poor. E.g. a common condition is that the cost of repair has to exceed 60% of the list price of the brand new equivalent vehicle at the time of claim. Leaving the potential for the repair bill to be sufficient enough for the Motor Insurer to deem the car to be a total loss (where the repair bill exceeds 60% of the value of the aged car), but insufficient to permit qualification for a New-For-Old replacement (because it doesn't breach 60% of the list price for a brand new one). In such circumstances will the motor insurer pay back to the original purchase price or revert to Market Value? I'd suggest the majority will be the latter.
   
5. What happens if the exact same vehicle isn't available (e.g. it's been replaced with a better engine or increased spec, or, been discontinued entirely) or if the Motor Insurer can't get one within their specified timescale? Some New-For-Old schemes will see the Motor Insurer pay out the cash equivalent of the brand new vehicle, others will see them pay out the cash equivalent of the original purchase price... most will revert to a Market Value payout instead.

New-For-Old cover from a Motor Insurer is potentially great and most decent GAP insurance providers will permit the customer to defer the start date of their GAP insurance policy in order to avoid unnecessarily duplicated cover, however anyone considering relying on New-For-Old cover from their Motor Insurer and forgoing GAP insurance as a result, should tread very carefully and make sure that they comprehend the terms of their Motor Insurer's New-For-Old scheme fully, before committing.

 

[James_TDi]

You'll almost certainly pay through the nose for it and it'll almost certainly be inferior cover to that which you can get from an indpendent broker.

You weren't wrong. ALA included the deposit and it still came out as less than half the cost for 3 years. Got a while to do some more research, the car doesn't land in the UK for another 6 weeks.

 

[SpeedyFrog]

You weren't wrong. ALA included the deposit and it still came out as less than half the cost for 3 years. Got a while to do some more research, the car doesn't land in the UK for another 6 weeks.

Anywhere on the ALA web site you can see info about them including the deposit?

 

[EDRIAT]

Anywhere on the ALA web site you can see info about them including the deposit?

Generate a quote for their Contract Hire GAP insurance policy and look out for their menu labelled "Initial Rental cover".

 

[ChrisKnottIns]

If a policy refers to the Net Invoice Selling Price, this is the price you pay after the negotiated discount. Don't know if that helps in this case.

 

[EDRIAT]

If a policy refers to the Net Invoice Selling Price, this is the price you pay after the negotiated discount. Don't know if that helps in this case.

It wouldn't usually be relevant to a GAP insurance policy for a vehicle that is the subject of a Contract Hire Agreement, but for a vehicle that is being purchased (Cash or Finance), it demonstrates the difference between Invoice & Replacement GAP insurance.

Where Invoice GAP insurance pays the difference between the Motor Insurance payout and the Net Invoice Selling price (as you describe) and Replacement GAP insurance pays the difference between the Motor Insurance payout and (in the case of a brand new vehicle) the cost of replacing it (usually the manufacturer's list price) with a brand new equivalent at the time of claim.

 

[ChrisKnottIns]

Thanks for the lesson. I'm not sure the OP was asking about Hire Purchase though. He mentioned PCP and deposits and that's what I've been answering.

 

[EDRIAT]

Thanks for the lesson. I'm not sure the OP was asking about Hire Purchase though. He mentioned PCP and deposits and that's what I've been answering.

You're welcome. Though my comments weren't intended specifically for you. I was just highlighting to all within this thread and their different variations on the same theme, how your comment about the Net Invoice Selling price is (or may be) relevant.

 

[James_TDi]

Anywhere on the ALA web site you can see info about them including the deposit?

It's mentioned on the Contract Hire GAP page: https://www.ala.co.uk/gap-insurance/contract-hire-gap-insurance
And, as already said, it's one of the options when generating a quote.