May 18, 2023
● A car is an expensive asset, but its value starts depreciating as soon as you take your car out of the showroom.
For instance, say your car costs AED 50,000 and you take the car home. Let’s assume its value goes down by 25% during the first year.
So, now the car’s value is AED 37,500 - in the first year itself.
● And, life is unpredictable - especially when you’re on the road. What if there is an accident and your car is damaged beyond repair? What if it gets stolen? Your insurance will cover only the current depreciated value of your car - not the amount you’ve originally paid, taken as a loan, etc.
● Is there a way to overcome this financial gap? Well, yes! Gap Insurance. In this article, we will dive deeper into what GAP insurance is, how it works, and whether or not you need it.
What is GAP Insurance?
GAP insurance helps cover the difference between what your insurance company pays out and the amount you have paid for the car originally, what you still owe on your car loan or lease, etc. in case of a theft or total loss. Essentially, it bridges the "gap" between what your insurance pays and what you have invested or are liable to pay. This type of insurance only comes into play if your vehicle goes for a total loss or is stolen.
How does it work?
GAP insurance provides financial coverage in the event of a total loss or theft of your vehicle. There are three types of GAP insurance coverage –
➔Return to Invoice
➔Return to IDV, and
➔Return to the Loan amount.
Let’s discuss this in detail.
1️⃣Return to Invoice
If your vehicle goes for a total loss, you will be compensated with the amount mentioned in the invoice when you purchased the vehicle.
2️⃣Return to IDV
It is the compensation paid by the insurer if your vehicle goes for a total loss, based on the IDV mentioned in your policy documents.
3️⃣Return to the Loan Amount
● It compensates you according to the outstanding loan amount on the vehicle in the event of a total loss.
GAP insurance is especially useful if you have a loan on your car and the payout from your insurance company is less than the outstanding loan amount.
● Suppose you purchase a car worth AED 100,000 and take a loan for the same amount. In the first year of your policy, your car’s value depreciates by 20%. And, it meets with a terrible accident and is declared a total loss. If your insurance policy only covers the current value of the car, you will receive AED 80,000 from the insurance company.
● Now, say your outstanding loan amount is AED 90,000. You will still owe AED 10,000 after receiving AED 80,000. If you have GAP insurance that covers the Return to the Loan Amount, you will receive AED 90,000 to help you pay off the outstanding loan amount.
Note: GAP insurance is applicable only for brand-new cars.
How To Add GAP Insurance to Your Car Insurance Policy?
Adding GAP insurance to your car insurance policy can be done easily. Follow these simple steps –
1. You can visit our website or any other insurance broker’s websites
2. Provide vehicle details such as make, model, registration year, and number.
3. You will also be required to provide personal details such as your name, phone number, driving experience, your location, etc.
4. After filling in all the details, you will be directed to the quote page where you can view different quotes from various insurance companies.
5. Some insurers may offer GAP cover as a built-in feature, while others may offer it as a paid add-on.
6. If you wish to add the GAP insurance cover, you can purchase the same and proceed with the payment.
GAP insurance can provide valuable protection for car owners who want to bridge the gap between the actual indemnity amount and any contractual liability they are obliged to pay. It is important to carefully consider the type of coverage you need and find the best deal from the available insurance providers. With GAP insurance, you can be sure that you are covered in case of a total loss or theft of your vehicle.