Little-known car insurance policy could save you thousands after an accident this winter

Buying a new car is always a thrilling event, but you could be left owing thousands of pounds if it is written-off before you have paid for it.

Every year around half-a-million vehicles are left unroadworthy and beyond the point where repairs make financial sense, however, because insurance companies will only pay the “market rate” for a write-off, it can leave a huge sum in what you still owe.

Leading motoring association MotorEasy has revealed how a Guaranteed Asset Protection (GAP) insurance policy takes that risk away and effectively buys you out of your agreement, potentially preventing you from being left out of pocket – especially at this time of year as road conditions change due to seasonal weather change s.

Founder and CEO, Duncan McClure Fisher, said: “Having a vehicle written-off by your insurance company can be a traumatic event. Not only have you likely been involved in a serious incident, but you could also be staring down the barrel of a serious financial shortfall due to only getting the market value reimbursed.

“Even if you can afford to replace it with a new vehicle, it will almost certainly be well below the spec of the one you’ve lost, but having a suitable GAP insurance policy in place is crucial to avoiding this.”

“With the popularity of leasing and finance deals, such as PCP [a form of hire purchase vehicle finance], you could be left owing thousands of pounds if your vehicle is written-off.

“GAP insurance takes that risk away and effectively buys you out of your agreement.”

GAP insurance falls into three main categories depending on the age of your vehicle.

Vehicle Replacement Insurance (VRI) is for cars less than three months old and with fewer than 500 miles on the clock. It covers the difference between your insurer’s payout and the balance needed to buy a replacement or a similar vehicle.

Return to Invoice (RTI), also known as ‘Back to Invoice’ GAP insurance is for cars up to 10 years old and with fewer than 100,000 miles on the odometer, depending on your provider.

You must have purchased your car from a dealer within the previous three to six months and the vehicle be owned outright or on finance.

This type of policy covers the difference between the insurer’s payout and either the price you originally paid or the amount needed to settle your outstanding finance balance – whichever is higher.

The final category is Return to Value (RTV), which is again for cars up to a decade old and under 100,000 miles.

These can have been bought privately or from a dealership, and the cover is for the difference between your insurer’s payout, based on current value, and the original value, which is calculated from the start date of the policy.

Financing deals, which include hire purchase, PCP and leasing, remain the most popular methods of getting a car without having to come up with the cash in one lump sum up front.

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Around 90 per cent of cars and vans in the UK are on some sort of finance deal, but many people only consider the monthly cost, without thinking of what would happen in the event of a write-off.

“That’s why GAP insurance is so important as the last thing you want is to be left owing a large sum of cash for a vehicle you no longer own. Having a suitable policy in place means that you are covered to settle a previous contract and then shop around for your next finance deal,” Duncan added.

However, he also urged caution when reading the fine print of any GAP insurance policy as some will only cover you for when a car is stolen or is declared a total write-off.

Others offer more comprehensive protection, including road traffic accidents plus fire and theft.

He said: “If you’re shopping around for providers, it also pays to check the maximum claim limit available as this can vary from one company to another.”

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