vehicle finance debt
GAP insurance protects you if an insurance payout falls short of the financial liabilities
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 THE MAJORITY of businesses opt for some type of financing deal for their vehicles and while this is a great way to finance a company car, it is essential that you consider protecting your company from vehicle finance debt if an employee were to get into an accident and write off the car or if the vehicle were stolen.

Unfortunately, there are 450,000 vehicles written off each year and another 76,000 are stolen.

Large shortfall

Many motorists believe that a comprehensive insurance policy will cover them in this situation, but this is not true. Insurers only pay the market value of the car at the time instead of the full settlement – this would leave you liable to pay the shortfall and this could be a huge sum when you factor in depreciation.

A car can depreciate as much as 60% after just three years, which is typically the length of a PCP deal if you are a personal buyer or a contract hire lease if you are a business​.

As an example, your business could purchase a car for £12,000 and then get just £4,800 three years later from an insurer if it were written-off. Due to the interest and balloon payments on

​such lease purchase  deals, this could leave your company seriously out of pocket and unable to replace the vehicle.

Protect your investment

Fortunately, there is a great way for your business to protect your investment and ensure that you do not end up footing the bill. This is Guaranteed Asset Protection, also known as GAP Insurance.

This is a type of insurance that will cover the shortfall between the amount that your insurer pays and the outstanding figure on your finance agreement.

The majority of fully comprehensive policies will offer a replacement car in your first year, but past this you are unlikely to get this protection. If your business relies heavily on its fleet, this could be devastating and have a lasting impact on your company. Therefore, if you have several vehicles and these are a key part of your operation, this type of insurance is a must.

Obtaining insurance

As of 2015, this type of insurance is not allowed to be sold by dealers at the same time as the purchase (this was as a result of too many salesmen attempting to force GAP Insurance on customers).

Whilst you can still obtain a policy from a dealership two days after, it is recommended that you shop around and look at specialist insurers. In addition to finding better deals, these specialist insurers often provide a number of different products. This could include fleet GAP Insurance, where you can protect your entire fleet under one policy.

Is it worth it?

Some businesses may see this is an unnecessary insurance and waste of money, but accidents occur on the roads every single day and it may not even be the motorist’s fault. In addition to this, a car is stolen every single minute in this country and 33% of these are never recovered.

Having your company vehicle written off or stolen will have a negative impact on your business and employees regardless, but you do not want the nasty shock of having to pay thousands of pounds to settle the finance agreement.

There has been a sharp rise in defaulting on payments for new car loans lately, seeing car finance debt increase a whole 15% in the last year. With this in mind, it is vital that you protect yourself with a GAP Insurance policy to bridge the shortfall between the car’s current market value and the outstanding figure on your finance agreement.

If you bought the car outright, the insurance will pay out the difference between the current market value and the amount paid – this will allow you to find a suitable replacement vehicle for your business.

Any employer should seriously consider protecting their company and avoiding a nasty surprise if a company car was written off or stolen.

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