Gap insurance is a type of auto insurance designed to cover the difference between what you owe on your car and the amount it's worth in the event of a total loss. Despite its purpose, there are several reasons why gap insurance may not pay out. Understanding these reasons can help you decide if gap insurance is right for you.
1. Your Main Motor Insurer Does Not Pay Out
The primary purpose of gap insurance is to top up the amount your auto insurance company pays out. If your main motor insurer does not pay out, you cannot claim on the gap insurance policy.
Example: Negligent Use of the Vehicle
If you leave the keys to yourvehicle unattended and it is stolen, your motor insurer may not pay out on the claim. Similarly, if you drink drive or use your vehicle for purposes not covered by your policy, your coverage may be limited or denied.
Example: Catastrophic Mechanical Failure
If your vehicle suffersdue to a catastrophic mechanical failure like an engine or gearbox blow up, your motor insurance is unlikely to cover the cost (unless it happened due to a flood). Even if the vehicle is not economically to repair, your gap insurance policy may not cover the loss.
2. You Do Not Have an 'Insurable Risk' on the Vehicle
To be valid, a gap insurance policy requires that you have an insurable risk on the vehicle- meaning that you have a potential financial loss if the vehicle is written off.
Example: Vehicle Ownership in Someone Else's Name
If you take out a gap insurance policy in your name but the vehicle ownership and financing agreement is in someone else's name, your claim may be denied if the vehicle is written off.
3. The Vehicle Is Being Used for Certain Commercial Activities*
Most gap insurance products do not cover certain commercial activities, even if your motor insurer does cover you.
Example: 'Hire and Reward' Vehicles
'Hire and reward' vehicles, including taxis, private hire, courier, and chauffeur work, are often excluded from standard gap insurance coverage. Similarly, vehicles used for tuition or driving school purposes may not be covered.
4. You Have Stopped Paying for the Policy
If you have elected to pay for gap cover on a monthly basis, or through a credit agreement, if you stop paying this then your coverage could end automatically.
5. You Sell the Vehicle or Change Owner
If you sell your vehicle or change ownership, gap coverage normally ceases automatically. This can also be the case if you change the ownership of the vehicle on the V5 document between family members. For example, if a father buys the vehicle and then transfers it to one of his children, the original purchase invoice for the vehicle is still in the father's name.
6. You Have Already Made a Claim on the Gap Policy
Gap insurance is a 'one-time-only' cover. You can only claim on it once when the vehicle is written off. If you successfully claim for the vehicle then that is the end of the policy.
7. There Is No 'GAP' to Fill
If there is no difference between the amount your motor insurer pays out and the original price you paid for the vehicle (if that is the gap you have purchased), then your coverage has no difference to make up.
8. Your GAP Insurance Policy Has Expired
All gap products have a period of cover. When the policy comes to an end, you cannot normally renew or get new cover as you have owned the vehicle too long at this point.
9. You Are Not Fully Comprehensively Insured
Most gap policies will require that you are fully comprehensively insured for the full policy term. If you are only third party covered then your motor insurer would not pay out for a fault claim, or a theft.
10. Your Vehicle Does Not Appear in Glasses Guide
Some gap insurance products do not cover vehicles that are not included in the Glass's Guide, which is widely used by insurers and motor dealers to work out the value of a vehicle.
Like all insurances, gap insurance can be complex and may not always cover all circumstances. If you have any questions or are unsure if gap insurance is right for you, it's a good idea to consult with an expert or review your policy closely.
