Why increasing used car values make Total Loss GAP the best choice of cover

It is being widely reported that the car market, post lockdown, has seen a surge in the value of used car stock. That means, put simply, it is going to cost you more to buy the equivalent car this year than it did the month before.

The average increase in the value of used cars, across the board, was 4.6% higher in August than it was in July. used car prices and GAP Insurance

Some other interesting statistics include:

the average used car price was 6.1% higher in August 2020 than it was in August 2019.
the average cost of petrol used cars in August 2020 was 6.8% higher than it was in July 2020.
the average price of a diesel used car rose 6% in the year between August 2019 and August 2020.

Increases in values were seen across nearly all types of vehicle, body style and age bracket of vehicle, according to the AutoTrader Retail Price Index.

So what does this mean when it comes to Gap Insurance products?

Often when you buy Gap Insurance for a used car, your motor dealer may offer you the standard Return to Invoice style GAP. If this is what you are happy with then the great news is that Total Loss Gap now offers that type of cover too.

Probably at a much lower price than the motor dealer too.

However, the fact that used car values are increasing means that the cost of replacing the vehicle will be more in the future. So, if you bought a three-year-old, 20,000 mile Ford Fiesta then if the vehicle was written off you may need money to buy another three-year-old, 20,000 mile Ford Fiesta in the future.

This is where our most comprehensive, Total Loss Gap Invoice and Replacement Gap comes in.

This is because in the event of a write off we can look at the future replacement cost. If this is higher (as is the case with the used car market at the moment) then we can cover this extra cost, on top of the original price you paid which is also covered.

Let's give you an example.

If you did buy a 3-year-old, 20,000 Ford Fiesta in 2017 for say £7,500 and you bought a GAP Insurance policy. In 2020 the vehicle is stolen, and written off by the motor insurer. They give the current market value for the vehicle of £4,000 to you as settlement.

The cost of the equivalent 3-year-old, 20,000 mile Ford Fiesta is now £8,500 (so £1,000 more than you paid for your car originally).

If you had taken the more basic Return to Invoice Gap this would have only paid the difference between your motor insurers settlement (£4,000) and the original price you paid (£7,500). This means a £3,500 settlement to you.

If you had taken the Total Loss Gap Invoice & Replacement GAP then this would cover between the replacement cost at the time you claim (here £8,500) and the insurers' settlement (£4,000). This means a settlement to you or £4,500 an extra £1,000 over and above what a Return to Invoice GAP would provide. Enough to get the same standard of the vehicle again.

What makes TLG Invoice and Replacement GAP even better

Recently we have also made a change to our Invoice & Replacement cover that enhances the policy in an ever-changing marketplace. There is a possibility that the vehicle you are buying now may not have an equivalent vehicle to compare it to in the future. This can happen if the manufacturer simply stops making the model and does not replace it with a superseding model.

If this happens then many 'replacement' style products in the market will only revert back to the original price you paid for the vehicle. This is simply because with no equivalent replacement there is not another figure to use. However, we accept that you have taken a Gap Insurance to take care of increasing replacement costs. If you only wanted the invoice price protecting then you could do so with a more standard, cheaper Return to Invoice Gap.

The TLG Invoice and Replacement Gap products bought from September 2020 onwards now take a different view when a replacement model is not available. In this circumstance, we will cover 110% of the original invoice price you paid if a replacement model is not produced by the manufacturer to base a replacement cost on.

This means, using our £7,500 example above, a replacement cost of £8,250 being provided instead.

Another reason why Total Loss Gap Invoice and Replacement GAP is, in our humble opinion, head and shoulders above other 'replacement' style cover in the market.

So in a market that is seeing (record in some cases) rises in used car stock prices, a Total Loss GAP Invoice & Replacement GAP could provide an extra level of protection in the long run.