When cars are stolen and not recovered or written off, motor insurance policies usually pay out only the approximate value of the car, rather than its list price at that point in time. This applies even if the incident occurs fairly soon after you buy a new car. The reason for this is depreciation; new cars depreciate extremely quickly, sometimes losing anything up to 50 per cent of their value during the first two years they are owned.

If you’ve just bought a new car, it is likely that the dealer will want to sell you gap insurance to cover the difference between what it cost and what your insurer company would pay out if the car was stolen or written off.

Gap (Guaranteed asset protection) insurance covers the shortfall between what your motor insurance company will pay out and the amount you actually paid for the car. This should give you enough money to buy another car of the same value, or at least pay off a finance company if any money is still owed on the car. If you purchased the car with cash, of course, this wouldn’t be an issue.

If you look on the internet you will see that it is probably cheaper to get Gap insurance from an independent company rather than from a dealer. To cover a shortfall of £7,500 it would cost approximately £165 spread over three years.

The question of whether Gap insurance is worthwhile is a difficult one. You could argue that the only way to find out is by knowing the risk. What percentage of cars are, in truth, stolen and not recovered or indeed written off entirely within the first three years of purchase?

Statistics regarding this information are hard to come by and even details which are available can be conflicting. The online insurer, Excite claims that half of all stolen cars are not recovered. Car-Finance.net, on the other hand, says the figure is one third. If you rely on the government’s car theft index (albeit for 2004), it is older vehicles – cars aged 11-15 years that are in the highest risk category of being stolen. Apparently, more than 50 per cent of all cars stolen in the UK fall into this category.

Truly concrete figures really don’t exist. According to Vcheck, which obtains its information from the police, ABI and the DVLA, more than 3,000 cars were written off and almost 300 stolen. And that was just in one day!

From the statistics available it seems that new cars are clearly at a lower risk of theft than older ones, yet if you don’t take out Gap insurance you will have no protection against your car being written off or indeed not being recovered in the, albeit not very likely, event that it is stolen. With car insurance already at a high level, many consumers would probably try and resist paying out a further £55 to cover the potential shortfall risk. Like with all insurance, it comes down to the question: What price peace of mind?

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Category : Auto Insurance Tips

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