How is gap insurance beneficial in the UAE?
Written by Ahmed Shabbir
What is Gap Insurance for cars?
When you purchase a new car, its value depreciates when it leaves the car showroom. It’s been observed that newly purchased cars often depreciate up to 20 per cent within a year. So, in case of damage to the car, a standard comprehensive insurance policy pays the damages according to the car’s current market value. However, the car loan amount may be greater than the car’s current market value of the accident. Hence, Gap insurance covers the difference between the current market value of the car and the lease value of the car.
How does gap insurance work and gives you the maximum benefit?
Gap insurance is best suitable if you have purchased the new car on lease and going through the following situation(s):
- You have financed the car for more than 60 months
- You have made a down payment of less than 20 percent
- You have purchased a car whose market value depreciates faster than an average
- You have rolled over negative equity from an old car loan into the new one
Hence, if you come across this situation, it is recommended to opt for gap insurance for your car.
Example: You buy a new car on lease worth AED130,000/-. You have kept the car for a couple of years and have been making all your pending payments. It’s now worth AED120,000/-, but you owe a car loan of AED125,000/-. It shows the difference of AED5000/-. If your car is damaged or totaled, your insurance company will pay you AED120,000/- minus deductibles if you have purchased a standard comprehensive car insurance policy. However, if you have purchased gap insurance, they will be AED125,000/- minus deductibles. Hence, the gap insurance policy will cover your financial liability gap.
Note: You should remember that you must possess a comprehensive car insurance policy and collision coverage to qualify for the gap insurance.
Gap insurance is applicable when your car is totaled in an accident or stolen. You put a claim to the car insurance company based on comprehensive insurance and collision coverage. The insurance company will pay the damages according to the actual cash value of your car, minus applicable deductibles. But, if you have added gap insurance to the policy, then the insurance company will also pay the difference between the actual cash value and the total loan or lease amount. If you limit your gap insurance, it will cover only the portion of your car loan or lease outstanding balance.
When does gap insurance not pay?
If you owe a lot more on the vehicle than it’s worth, there is a possibility. Then, the insurance company will only cover a portion of the outstanding balance of your car loan or lease instead of the whole outstanding amount of the car loan. But keep in mind that gap insurance may not cover additional charges related to your car loans, like finance or excess mileage charges, etc.
Is Gap Insurance worth buying?
Gap insurance is worth buying when there is a significant difference between the car’s current market value and the lease or loan value. Gap insurance safeguards the risk of that gap, and you can cover the risk with a nominal amount added to your standard car insurance premium. You can consider buying Gap insurance in the following instances mentioned below:
- When you’re leasing a new car
- When you have a loan rollover
- When you have a long term financing for your car
- When you want to protect your financial risk against the depreciation
- When you’ve made a lower down payment for buying a new car
How to get the best Gap Insurance coverage?
Gap insurance is not a mandatory requirement by the UAE government. It can be required by the leasing company to buy gap insurance along with the standard car insurance policy. Or some car dealers can automatically add gap insurance to your standard car insurance policy. However, you can decline it if you don’t want to cover your car’s current market value and loan value difference.
To get the best coverage, you need to follow the steps mentioned below:
- Analyze the need if you want gap insurance or not.
- Make an in-depth analysis and foresee the future market value of your new car.
- Find out the best car insurance companies in the UAE.
- Get the best quotes for comprehensive insurance, collision coverage, and gap insurance.
- Opt gap insurance policy as per your need to cover your car value difference risk, which may arise financial liability in case of a car accident.
How BuyAnyInsurance help you to get the best Gap Insurance Coverage?
BuyAnyInsurance is a platform where you can get a good price comparison of the various car insurance policies provided by different best car insurance companies. BuyAnyInsurance possesses 14 years of experience in the car insurance industry and can suggest the policy that best suits your situation. They also provide 24/7 customer service to come up with your query related to car insurance at any point in time. We recommend you contact BuyAnyInsurance and consult your car insurance-related matter with them to get the best advice as they provide best answer to the question of where to buy gap insurance.
Frequently Asked Questions:
No, they are different! Gap insurance covers the difference between what you have to pay vs the car’s actual value!
You have to pay for the gap insurance for three years.
The good news is Yes! You can cancel gap insurance any time as this is not required legally.
Yes, but only if you cancel your gap insurance within 30 days of applying!
Yes, but to qualify for that, you have to get the gap insurance within three years of buying the car.
You can get gap insurance when you are leasing a car!
Gap insurance is an optional car insurance coverage that applies if your car is stolen or deemed a total loss. When your loan amount is more than your vehicle is worth, gap insurance coverage pays the difference.
Gap insurance protects you from depreciation loss of the vehicle. Once you buy your car, its value starts to decrease, and sometimes significantly. If you finance or lease a vehicle, this depreciation leaves a gap between what you owe and the car’s value.
Gap insurance pays out when the amount left on your car loan or lease is greater than the value of your vehicle at the time it’s declared a total loss. Gap coverage is worth it only as long as you are leasing a car or if you owe more on a loan than your car is worth.
Wrapping Up!
Gap insurance is one of the best additional benefits to the standard car insurance policy if you have purchased the car on loan or lease and want to cover the difference between car market value and the car loan or lease. It will benefit you if you have a car accident, then the car insurance will also cover the market value difference. But, keep in mind that gap insurance is only applicable if you have also purchased comprehensive insurance along with collision coverage. Gap insurance is the additional part of that car insurance policy. Further, we recommend you to opt for gap insurance if it suits your scenario and may consult BuyAnyInsurance for the best car insurance consultation.
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Originally published Mar 20, 2022 20:35:19 PM, updated May 10, 2024
