Michael bought his first family car 3 years ago for a purchase price of €30,000 when his first child was born and inevitably needed more space. Due to the natural depreciation process, today his vehicle is insured by his motor insurer for a sum insured of €20,000. Michael is concerned and decides to further protect his financial interest by buying a GAP Insurance insurance policy; also on the market value of €20,000. But how will this protect him exactly?
Let us say that Michael has a very bad accident tomorrow. Don’t worry Michael and his family will be safe, he bought a PSA vehicle after all! Unfortunately his car may not make it. If declared irreparable, the motor insurance company will write it off, and after further depreciation deductions and the excess payment, the motor insurance policy may end up reimbursing Michael with €17,000. This is definitely not enough to buy another family car which Michael will definitely need, especially with another child on the way.
GAP Insurance guarantees Michael, 30% of the value that it was insured for i.e. €20,000, irrespective of the amount paid by the motor insurer. Michael gets an indemnity of 6000€ with GAP Insurance. This means that Michael is now in the following financial position:
| Motor Insurance Payout
| GAP Insurance Payout
| Total Amount
Michael is now in a better position to buy another vehicle that suits his family needs. Michael is happy.