What is a gap insurance Claim Limit and why is it important?
When it comes to gap insurance, one of the most common questions asked is, what claim limit should I choose. The answer to that question is, there is no answer. Nobody knows exactly what a car is going to be worth in a particular amount of time and therefore a claim limit is really only an estimation of what is going to work for you. Different things can influence the value of a car, depreciation, appreciation, the economic climate, public opinion, therefore a claim limit should be based on the best possible outcome you can see, after taking everything into account, that you believe will cover you and your situation effectively.
A claim limit is a very important part of your gap insurance protection, it essentially is the upper limit of any gap claim you will make in the future, your claim limit is the absolute maximum amount you will receive, if you happen to make a claim.
This means that if your claim limit is not big enough and cannot perform, then you may lose out on money.
This is why claim limits should be considered extremely carefully.
For example, if you had taken out a 4 year Return to invoice gap insurance policy on your vehicle, which cost £15,000, lets say that the claim limit you chose was £10,000. If you were 3 years into your coverage and your vehicle happened to be stolen or you were involved in an accident where it was written off. Due to car depreciation, your vehicle may have a market value of around £8,000. This therefore is the amount your own motor insurance will award you on that day. This means that to “Return you to your invoice price” the gap insurance must pay out £7,000. Your claim limit is £10,000 and therefore is a sufficient amount of money to return you back to the original price you paid. If your car had dropped in value further, to around £4,000, then the gap would have been £11,000 and therefore you would be £1,000 out of pocket because your claim limit is only £10,000.
As this points out, the claim limit is extremely important when deciding on your gap insurance policy. There is no certainty from anybody about the right claim limit you can choose, nobody knows the exact depreciation rates of a particular car over certain periods of time. Obviously, if you are looking for a longer claim limit, your vehicle is likely depreciate more, depending on the amount of time that has gone by.
You should also think about which claim limit is correct for you, due to the type of gap insurance that you desire. For example, Finance gap insurance will cover your outstanding balance that is owed to your finance company, therefore a smaller claim limit is likely to be sufficient. A vehicle replacement gap insurance policy will probably need a higher claim limit, as this type of gap coverage ensures that you can buy the same standard of vehicle again, due to car appreciation this is likely to be a significant amount more than you originally paid and so you need a claim limit sufficient to perform.
As this indicates you could take out gap insurance for the same vehicle and same period of time, though the claim limit could be different depending on your particular needs.
The claim limit you decide on when taking out gap insurance is 100% your decision and may not be an easy choice, however taking into account what type of cover you are looking for and the particular circumstances of your vehicle, should lead you to making an informed decision that should be sufficient if you should ever need to make a claim.