Let me paint a picture; you’ve had your new van for about a year only to step outside your front door one morning to find it’s gone – stolen. Even worse, you’re in an accident and it’s a complete write off.
What a nightmare. On the upside though you’ve got fully comprehensive insurance so that’ll cover any costs you’ll incur and allow you to either settle your current lease agreement and get a new van or buy a new comparable van outright. Well that’s the idea anyway. Unfortunately the reality isn’t quite as simple, or fair, as that.
It’s always been the case that if your vehicle is stolen or written off, the insurer will pay enough to replace the vehicle with something similar at the time it was written off. In other words, roughly the same in terms of age, condition and mileage.
That’s all very well but it does present a couple of problems:
1. If you own the van outright your insurance payout will mean you’ll have to hunt around for a vehicle of comparable age, mileage and condition (easier said than done!). Either that or fork out extra cash to purchase a new vehicle.
2. If you lease the van or have another finance agreement in place, then the insurance payout may not be enough to settle your lease agreement, particularly in the early stages. In this event there could be a financial shortfall that you’ll have to fork out for before replacing your vehicle.
Adding Insult to Injury
That’s bad enough but to add insult to injury, a recent BBC report has revealed that Complaints to an ombudsman about motor insurance rose by 29% last year - with key gripes including valuations of written-off vehicles.
The ombudsman has accused some insurance companies of valuing by trade price - the amount a dealer would pay - rather than retail price.
David Cresswell, of the Financial Ombudsman Service, said that even though the rules were clear, some insurance companies were not following them.
"We uphold about half of complaints in favour of the consumer. That is usually because the insurer has used the so-called trade price. That is the price that a dealer would pay,"
"That would be hundreds of pounds less than the retail price you would pay on a garage forecourt. This is not really acceptable."
For the average driver this can mean you’re not only having to plug the financial shortfall of your finance agreement or the difference in cost of your payout and a new van. You may also have to pay hundreds of pounds extra than you should because of your insurer undervaluing your van at the time of its theft or write-off.
What’s the Solution?
One piece of extra insurance a driver can take up is a product called GAP insurance. These policies cover the difference between what an owner originally paid for a car, and what it was worth by the time it was damaged or stolen.
Of course, taking out an extra policy means paying out more in insurance premiums but GAP insurance is usually a very cost-effective method of protecting your business against the financial risks highlighted above.
GAP Insurance will cover any shortfall up to a value of £5000 offering you additional peace of mind at minimal cost. It can even be included in the monthly rentals of your lease agreement and is usually offered at a fixed cost for the duration of your lease.
Is it worth taking the risk or paying that little bit extra? Ultimately that decision’s up to you but to find out more about GAP insurance click here.
Leading UK van leasing company VanLeasingQuotes.com has just released statistics showing that 20% of businesses leasing a vehicle are leaving themselves open to a financial risk.