Casco: with or without GAP
GAP stands for “gap”, “interval” or “gap” in English. The word is used in a variety of professional fields. In consulting, it is one of the methods of strategic analysis. In agriculture, it is a system of standards for the safety of grown products. In insurance, it is a guarantee of value preservation.
What is GAP?
In Russia, the concept of GAP can be found in voluntary vehicle insurance – hull insurance. Recently, many policyholders did not pay attention to the presence of this item in the insurance contract. Today, each insurer offers its clients two coverage options: with or without GAP. This option provides a guarantee that the sum insured will remain unchanged until the end of the insurance contract. This condition is important in the event of total loss (or “total”, i.e. the extent of damage to the vehicle, in which it is impossible to restore or its repair is economically inexpedient) or theft of the car. The policyholder will receive payment in the amount of the full sum insured specified in the insurance contract.
If there is no condition to keep the sum insured, it will be reduced during the term of the contract taking into account the depreciation of the vehicle. It should be necessarily reflected in the terms of the policy and the rules of insurance.
How is depreciation taken into account?
Each insurer establishes its own system for calculating depreciation. The sum insured may be reduced monthly or quarterly. The annual depreciation rate for cars is:
- 20-25% – first year of use;
- 12-15% – second year of use;
- 10-13% – third and all the following years of use.
A customer has insured a new car without the GAP option for a sum insured equal to its actual value, 2 million rubles. Under the insurance contract, the depreciation rate is 1.7% per month. On the ninth month of insurance the car was stolen.
The payout was: 2 million – 2 million * 1.7% * 9 = 1 million 694 thousand rubles. The client lost 306,000 rubles that he could have received if the insurance contract had provided for a fixed sum insured (GAP option).
How is GAP displayed in the contract?
You won’t always find the abbreviation GAP on the policy. The sum insured condition may be written in different wording. Sometimes the contract contains a table of changes in the sum insured or an indication of its variability. The column “sum insured” may contain the value “deductible” or “variable” with a reference to the paragraph of the insurance rules, which specifies the procedure for taking into account the depreciation of the car. If there is no indication on the main page of the policy on the presence or absence of GAP option, you should look through the document, where the special conditions of the contract are written.
The insured always has an opportunity to clarify with the insurer’s representative: whether the depreciation of the automobile will be taken into account during the term of the contract, how it will affect the insurance payment for theft or total loss, and where in the insurance documentation the method of depreciation calculation is specified.
Not to be confused with aggregation!
Inexperienced insurance agents and policyholders may confuse GAP with aggregation. What’s the difference? Aggregation is the reduction of the sum insured by the amount of benefits paid.
For example, when the contract was signed the sum insured was 2 million rubles. The first insured event occurred, the payment of which amounted to 100 thousand rubles. At the second event the limit of coverage will be: 2 million – 100 thousand = 1 million 900 thousand rubles. That is if further theft happens, the payment will make not 2 million rubles, but 1 million 900 thousand rubles.
Aggregate has nothing to do with the depreciation of the vehicle, unlike GAP.
GAP can be bought separately from a comprehensive insurance
Intermediaries often offer a hull insurance from one insurer and GAP from another. The two can be covered by one or two different policies. In the latter case, if the car is stolen or totally destroyed, the first insurance company will make a payment under the comprehensive insurance with consideration of wear and tear, and the second will pay the missing amount to repay the full value of the car. A common name for a separate GAP insurance product is “Guaranteed Preservation of Vehicle Value”.
Whether to overpay for GAP or not, every insured decides for himself. The cost of the option may vary from insurer to insurer. But it is less than the amount of depreciation that the insured risks to lose in case of theft or total loss if he does not provide GAP.
Did you like the material? Don’t keep silent – share your impressions and wishes with the editorial board! You can do this through the feedback form, you can also send there any questions on topics of interest. We’re waiting!
A weekly newsletter with the best “Open Journal” content
No minimum amount, no maintenance fees and no hidden fees
You need a brokerage account to subscribe to the product.
Otkritie Investments” project
Open brokerage account
About Otkritie Investments
2 Letnikovskaya St., building 2, Moscow, Russia. 4
8 800 500 99 66
I agree to my personal data processing.
The information in this section of the website is for information purposes only, and does not constitute a guarantee and/or promise of future performance (return on investment). The information contained herein is the opinion of the author (or group of authors) of the articles and shall not be treated as a direct guide to action or an official position / recommendation of Otkritie Broker AO. Otkritie Broker AG is not responsible for any use of the information contained in such publications and accepts no liability for any losses incurred as a result of any transactions with assets made on the basis of the data contained in such publications. 18+
Otkritie Broker JSC (brand name: Otkritie Investments), securities market professional participant license No. 045-06097-100000, issued by FCSM of Russia on 28.06.2002 (unlimited validity).
OPEN JOINT-STOCK COMPANY MANAGEMENT COMPANY “DISCOVERY”. License No. 21-000-1-00048 of April 11, 2001 to manage investment funds, mutual funds and non-governmental pension funds, issued by the Federal Commission on Securities Market of Russia (unlimited validity). License of a professional securities market participant No. 045-07524-001000 of March 23, 2004 for securities management issued by the FCSM of Russia without any limitation of validity.
What is GAP in hull insurance and why you need GAP insurance
By concluding a hull insurance contract, car owners seek to compensate for the risks associated with the loss of a vehicle or critical damage to it. Experts of the financial portal Vyberu.ru told how GAP insurance helps in this, what GAP insurance is, how it affects the indemnity amounts and what the GAP option gives to the owner.
GAP insurance – what is it in simple words
An effective and promising product on the insurance market is the GAP option. It is offered to be included in the contract when you conclude KASKO, but you can also do it later. Since the GAP add-on is a relatively new product, we will try to tell you as much as possible about GAP in insurance, what it is in simple words.
Under HACCP, insurance is issued for the full value of the car, minus depreciation. As a result, each year the price of the car decreases. At the same time, the operating conditions are not taken into account. The owner drives a new car out of the salon, and the cost of the vehicle immediately becomes less. Every insurance company uses its own calculation method, and the average depreciation percentage will be 1.5% per month:
- first year – 20-25%;
- second year – 10-15%;
- third year – 10-15% and so on.
GEP insurance makes depreciation equal to 0%, compensating the difference between the initial price of the car and the CASCO insurance payout. Signing a contract to connect the additional option allows the insured to receive the full value of their car without depreciation deductions.
The GAP risk in KASKO covers the total loss of the vehicle. Compensation is not paid when repairs are made.
Explanation of abbreviation
Guaranteed asset protection – guaranteed asset protection, which means in GAP insurance, “a guarantee of preserving the value of the vehicle.” This option protects the money that was spent to buy the car from being lost due to the effects of depreciation and amortization. If an insured event occurs, the purchase of the add-on guarantees – the insured gets paid in full. This allows you to purchase a new car with minimal additional investment.
How GAP works, examples
Let’s look at simple examples of how GAP insurance changes the amount of insurance payments.
- CASCO. Sergey purchased a car for 3 million rubles. In the process of acquiring a vehicle he decided to take out a hull insurance policy. Two years passed, the car was stolen. Sergei is paid the sum insured after deducting the depreciation, equal to thirty percent. As a result, the sum insured amounted to 2 million 100 thousand rubles.
The result without buying GAP. There is no way to get back the market value of the car under hull insurance. The owner lost 900 thousand rubles due to depreciation.
- A hull insurance policy with a GAP option. Evgeny purchased a car for 3 mln rubles. He is offered to take out GAP insurance in addition to KASKO. He agrees to the additional option. The car is stolen after two years. Considering 30% depreciation, Evgueny gets two million one hundred thousand rubles and nine hundred thousand rubles for the depreciation of the vehicle under GAP Casco.
The result when GAP is executed. The owner receives the full value of the car without taking into account depreciation, completely covering his loss.
According to the insurance contract, there are GAP payment limits. Usually it is one million rubles.
As indicated in the contract
When a voluntary insurance supplement is written, it is not always identified by the acronym GAP. Additional guarantees of preserving the value of the car during its operation may be specified in different ways. Often, this option is included in the special conditions of the contract. GAP insurance is concluded in person at the company’s office or online at the official website of the insurer.
Note that GAP and aggregation are different concepts that are often confused. Inexperienced insurers may tell you that aggregation is GAP. In fact, aggregation is the reduction of the insurance payout by the amount of payments already made. For example, you should receive one million rubles, but you have already been paid 200 thousand. So, when the second insured event occurs, your payout limit will be 800 thousand. GAP has nothing to do with aggregation.
When is GAP useful?
The following types of GAP insurance are available under the insurance contract:
- Theft. The client receives a GAP payout that is less than the amount of the contracted amount on the date of the contract. GAP insurance pays off the difference.
- Destruction. Receiving insurance due to serious damage to the insured car in less than the sum insured on the date the contract was signed. GAP will make up the difference.
The GAP risk is insured only if you have a KASKO on the conditions of full car insurance, not its separate parts.
GAP insurance for a car loan
When taking out a car loan, it is mandatory to take out a hull insurance policy. Banks require the purchase of policies to reduce their risks. There are no other obligatory insurance requirements. Often, a borrower who signs a loan agreement may be offered an additional option – GAP. It provides the opportunity to be reimbursed for the difference between the price of the car specified in KASKO, and its depreciation – the value that the insurance company considers real at the time of critical damage or theft of the car.
Whether you need GAP under KASKO, it is up to the borrower to decide. However, it is important to remember that GAP allows you to repay all financial problems in case of loss of the car. The owners of the credit cars get the full value of their vehicle and easily repay the credit to the bank.
You can purchase a GAP policy for credit cars at the same time as taking out hull insurance or later. Be sure to check with the bank where you get your car loan to see if they will accept GAP insurance from your insurance company. Banks usually offer GAP insurance on a loan from their partners, not working with others.
The terms and conditions of GAP auto insurance
The basic principles of supplemental GAP insurance include the following criteria:
With a voluntary GAP insurance policy, the owner of a vehicle receives compensation when an insured situation occurs:
- An accident with critical damage to the vehicle;
- Arson, explosion or fire due to technical problems with the car;
- theft, when the car could not be found or it was found with damage that does not allow to make repairs and return it to operation;
- Natural or other disasters;
- Falling heavy objects on the car.
GAP allows the owner to protect himself against the risk of theft, loss of his vehicle. Insurance will fully reimburse its cost. It gives the assurance of financial protection in case of emergencies.
The term of the GAP is determined by the CASCO period and the age limit of the vehicle. If the insurance company does not conclude a contract with owners of vehicles over five years old, then at the onset of this time limit GAP will automatically terminate. Therefore, it is possible to enter into a long-term contract without the need for regular renewal. GAP renewal is carried out after a technical inspection and evaluation of the vehicle.
Additional insurance can be purchased if your car meets the following requirements:
- age – no older than five years;
- the mileage – not more than one hundred thousand kilometers;
- The cost – not more than six million rubles.
Insurers have the right to change one or more requirements when drawing up policies. The terms and conditions are always negotiated individually.
The GAP supplement is only available to owners of cars during the first year after the purchase of the vehicle. At that, the cars have to be in good working order and in motion.
Compensation under the insurance is made after notification of the insurer about the insured event. An application for reimbursement is submitted to the company. The money can be paid out in the owner’s hands or transferred to the account / bank card.
How to take out insurance with GEP
When choosing an insurance company to buy hull and SEP insurance, pay attention to the following criteria:
- availability of a license to carry out insurance activities on the items you are interested in;
- Registration in the register of the Central Bank of the RF;
- Lack of information that the company is going bankrupt or there are any risks of closure;
- A great deal of experience and expertise in the insurance market;
- provision of comfortable interaction with clients;
- Effective support service in normal conditions and in case of force majeure;
- opportunity to calculate indemnity and insurance payments in advance;
- favorable insurance programs, availability of additional options;
- convenience of KASKO contract conclusion, GAP supplementation.
When choosing an insurance company, we recommend you to study the reviews of its clients, both former and new. We also advise to find out, what principle the insurers adhere to when calculating the compensation, how much the indemnity will be. Another important point is how quickly the insurance company will be able to pay the indemnity. In critical situations, the sooner help arrives, the better.
To sign a KASKO contract with GEP you need the following documents:
- passport or other identity document;
- Driver’s license of all persons who will be included in the insurance;
- Technical passport of the vehicle.
In addition, you may need a document proving ownership of the vehicle, a previous KASKO, and a certificate of inspection of the vehicle.
Upon receipt of the policy it is recommended to check whether the personal information about the owner, the data about the vehicle and the insurer, and the insurance risks are entered correctly. If you discover any errors, report them immediately. Otherwise, even with a policy, there may be problems with payments.
What affects the cost
The cost of GAP insurance is not fixed. The calculation of rates is different for each case. Typically, the following factors influence the rate:
- price, age, mileage, design features of the car;
- Data on the number of thefts of the given brand;
- driving experience, statistics of accidents of the owner and other persons listed in the insurance;
- availability of an anti-theft system and its effectiveness;
- parking place of the car.
If you purchase the option, the additional cost of GAP in the insurance is from 0.25% to 1.5% of the sum insured under the KASKO. The exact cost will be communicated by the insurer after evaluating all factors.
Is it worth paying GAP in insurance? Of course, if you want to receive the insurance payment in the amount of the real value of your car.
Advantages and disadvantages of GAP insurance
The main advantages of GAP insurance:
- Full compensation for the difference between the Hull Insurance payout and the value of the car at the time of the contract. GAP covers depreciation and amortization.
- Affordable price. The owner pays about 1% of the CASCO value.
- Voluntary basis. GAP is not compulsory insurance. The owner decides for himself whether he needs this insurance or not.
- Optimal conditions. It is possible to insure a new or used car. The age limit of the car is determined by the insurance company.
- Preservation of investment. For the owner of the car, the compensation will be exactly the amount he spent on the purchase of the car.
The main disadvantage of hull insurance with GAP is the inability to insure premium cars, expensive and rare, as well as tuned cars. Another disadvantage is the limit of payments under GAP. Usually GAP insurance can compensate one million rubles.
Executing KASKO policies, it is possible to refuse the additional option GAP. It belongs to voluntary insurance and is not obligatory. GAP is executed in insurance companies at the request of the car owner.
The GAP option is an addition to the usual KASKO, that is why one cannot register GAP without signing a voluntary KASKO insurance contract. It does not happen that you have a GAP policy, but no KASKO policy. GAP is valid as long as there is a KASKO policy, not vice versa. That said, you can get a CASCO policy from one insurer and get a GAP insurance contract from another. It is not prohibited.
Within fourteen calendar days from the moment of conclusion of a contract on GAP insurance policy, if there were no insured events, the buyer of the service has the right to terminate the agreement and return the sum of the payment in full or in part. The terms are prescribed in the rules of GAP insurance of the company with which the contract is concluded. After this period has passed, it is also possible to cancel the insurance products, but without a refund of the amounts paid.
You can get a GAP insurance policy if you have a CASCO with a deductible. The deductible will only affect the amount of the insurance payout. When the sum insured is calculated, the payout will be the full value of the insurance contract with the deductible.