The most frequently asked question… The honest answer, is that it very much depends how much your vehicle is going to depreciate by over the duration of the Replacement Gap Insurance policy.
Considering that nobody knows for sure how much your vehicle is going to depreciate, it’s a little bit of guess work. A common perception is that the average vehicle will depreciate by between 40% and 70% over a three year period; and indeed lots do – it’s not a bad starting point for selecting a Claim Limit.
The issue with this perception though, is that it’s never a steady rate of depreciation. Vehicles depreciate faster (a greater %’age) in their earlier years (in terms of the age of the vehicle) than they do in their later years. So, whilst your vehicle might well only depreciate by say 50% over a 3 year duration, it could well be that perhaps 30% (or more) of that, was in the first year alone!
When choosing a Claim Limit for any Gap Insurance policy, you have to try to predict the potential depreciation over the entire duration of the policy. If, for example, for a £15,000 vehicle you chose a 3 year policy with a Claim Limit of £5,000 (33%), this may well be sufficient for the first year, but with the potential for the vehicle to depreciate by up to 50%, 70% or even more, a £5,000 Claim Limit would likely be woefully inadequate as you approach the end of the policy.
The Replacement Gap Insurance Difference.
Let’s not forget too that Replacement Gap Insurance needs to factor in the potential for the replacement cost of the new vehicle being more expensive than the original purchase price paid. This could be for a number of reasons such as the same level of discount that you originally enjoyed no longer being available or just that the Manufacturer has increased the price of the equivalent vehicle full stop!
The point, is that when choosing a claim limit for a Replacement Gap Insurance policy you need to be considering both ends of the scale. Firstly, by how much will your vehicle depreciate over the lifetime of your Replacement Gap Insurance policy. Secondly, by how much (if any) will the cost of replacing your vehicle with a new equivalent increase over the same period.
But this is all still guess work. We want to flip it on it’s head a little. so we’ve taken the unusual step of publishing details of recent claims on our policies.