Someone has sent me a PM with questions about New-For-Old cover. However because I'm new to the forum today I'm currently unable to reply to PM's - as in the forum prevents me from doing so! The point raised is a good one though. I recently published a Blog article on this very topic - I can't link to the article itself (as that would identify who I am and breach forum rules) but I can certainly discuss the gist of it.
The person who sent me the PM specifies that they have their car insured with NFU and that policy incorporates a 24 month period of New-For-Old (N4O) cover during which if the vehicle is declared a Total Loss, the NFU will replace the car with a brand new one.
First of all... lots of Motor Insurance companies do now include N4O cover for a brand new vehicle. Usually it's just for 12 months, though to my knowledge only SAGA and NFU provide N4O cover for 24 months.
Secondly, this is often immediately seen as negating the requirement for GAP insurance during that period and as a consequence, plenty of people elect to wait until the end of that 12 or 24 month period before buying GAP insurance... only to then discover that by then, it's too late and the only form of GAP insurance they can get is based on the then-depreciated value of their vehicle rather than the original purchase price (Invoice GAP insurance) or replacement price (Replacement GAP insurance).
In principle, if you have N4O cover with your Motor Insurance and you're happy with it (there are quite specific things you should check), you still have to purchase GAP insurance within a set period of time after taking ownership of the vehicle (normally within 6-months) but with the majority of providers, when you buy the policy, you can elect to delay the start of the GAP insurance policy by as much as 12 months from when the vehicle was first registered.
This affords you the benefit of avoiding having duplicate cover in the first year, but still getting GAP insurance in the later years. Unfortunately there is not currently a provider who will allow you to delay the start date by more than 12 months.
However, it's not quite as clear cut as that because whilst some N4O schemes are superb, others are far from it....
Consider that SAGA claim to offer 2 year N4O cover, but the second year cover expires as soon as your vehicle reaches 12,000 miles.
Also consider that the SAGA policy states that in the event of damage by accident, you only qualify for a N4O replacement vehicle if the cost of repairing the vehicle exceeds 60% of what it would cost to buy a BRAND NEW version of that vehicle at the time of claim. But you can bet that if the cost of repairing your vehicle exceeds 60% of what your own car is worth they're going to write it off, in which case you'd be faced with the scenario of your car being written off because the cost of repair was sufficient to warrant it, but have that cost of repair fall short of the higher 60% of the brand new vehicle cost and therefore not cause you to NOT qualify for a N4O replacement and of course if you don't qualify, you're only going to get a Market Value payout and then you'd want GAP insurance in place.
In addition, if at the time of the loss (1st or 2nd year) a version of the same vehicle isn't available (either at all, or, within their required timescale) they'll resort to only paying you what they believe your vehicle is worth - in which case you'd want GAP insurance to pay the rest but of course, if you'd delayed the start date by 12 months and this was happening in month 10, the GAP insurance policy wouldn't be valid yet.
By comparison to the point immediately above, the Tesco Car Insurance policy states that if they cant find a physical replacement vehicle at the time of claim, they, "...will pay the most recent new list price, including VAT (where appropriate), for that specification of car." (Page 18 of their policy booklet as of February 23rd this year).
It's therefore very important that you check not only if you have N4O cover with your Motor Insurer but also how good it is and in that regard, you need to know the answers to the following questions:
- If the vehicle is damaged in an accident. At what threshold (in terms of the cost of repair) is the vehicle declared a Total Loss?
E.g. they may say that the they'll declare the vehicle to be a Total Loss if the cost of repair exceeds say, 50% of the current Market Value of your vehicle.
- At what threshold (in terms of the cost of repair) is the claim eligible for a New-For-Old replacement?
Sometimes there's an additional threshold such as "if the cost of repair exceeds 50-60% of the cost of buying a brand new version at the time of claim the New-For-Old clause is invoked".
This is quite important as the difference between this and the first question above, can in theory see the vehicle written off but not quite eligible for a New-For-Old replacement - In which case you'd be needing to claim the difference via a GAP insurance policy.
- What will they do (how will they handle the claim) if they cannot source a physical replacement vehicle?
In our experience, there are three possible scenarios as follows:
- The Motor Insurer pays you a cash-lump sum equivalent to the Manufacturer's List Price for buying a brand new version of the same vehicle at the time of claim - this would be like having Replacement GAP insurance in the first year.
- The Motor Insurance pays you a cash lump sum equivalent to the price you originally paid to put the vehicle on the road - this would be like having Invoice GAP insurance in the first year
- The Motor Insurance pays you only the Market Value of the car that was written off - this would clearly be like having no GAP insurance in the first year.
Ultimately, you don't want to be in a position of having deferred the start date of your GAP insurance policy, only for your car to be in an accident within the first year, declared a Total Loss, but not quite eligible for New-For-Old replacement of your vehicle, or, you are eligible, but one isn't available and your Motor Insurer is only obliged to pay you the Market Value of the vehicle that they're writing off.