You could lose thousands of pounds if you claim for a vehicle that’s fallen in value. But help is at hand.
Motoring costs have soared over recent months, with rises in the price of fuel and car insurance hitting the headlines with depressing regularity.
But although it receives much less attention, there is another significant financial burden faced by drivers: vehicle depreciation.
It is often said that simply by driving a brand-new car out of a showroom can reduce its value by thousands of pounds. Certainly, new vehicles tend to depreciate more quickly than used models.
But the devastating effects of depreciation can be really brought home if your car is stolen or written off in an accident. This is because insurers will only pay out the value of the vehicle at the time of the theft or collision.
So say you bought a new car for £15,000 two years ago. If it was written off, your insurer would only pay out today’s market value, which could easily be as little as £10,000.
It would be up to you to make up the shortfall from your own pocket.
How to protect against depreciation
This is where car-depreciation insurance comes in. This type of policy is also known as GAP (guaranteed asset protection) insurance, and it is designed to make up the difference between what you paid for your car and what an insurer gives you if you claim for a theft or write-off.
So in the above example, while the insurer would pay out £10,000, your depreciation policy would provide the remaining £5,000.
Gareth Kloet, Confused.com’s head of car insurance, says: “From my perspective, car-depreciation cover is extremely useful and does address a real concern.
“It will probably have the greatest value to those people who buy a brand-new vehicle, however it is also applicable to those who purchase used vehicles. If you consider the loss in market value that comes with simply turning the key and driving away a new car from the showroom, having protection against a total loss brings peace of mind.”
This type of policy normally applies to vehicles up to seven years old, and which have not covered more than a certain number of miles (for example 80,000).
It may also be harder to find cover for cars worth more than, say, £30,000.
Depreciation cover: your options
When you buy a policy, there are various choices you can make regarding the level of cover.
For example, you may choose to insure any additional modifications to the vehicle, such as alloy wheels.
If you have bought a new car within the last 90 days, you can opt for “return to invoice” cover, which means you will get back the full amount you paid (rather than the value of the vehicle when you took out the policy, which would be lower) in the event of a claim.
You could even set up a policy that would also cover any excess you had to pay your normal motor insurer.
Bear in mind that depreciation/GAP insurance only pays out if you suffer a total loss – so it would not cover you if there was a mechanical or other problem with your vehicle after its warranty had expired.
