Gap Insurance – A way to reduce the risk or a waste of money?
Gap Insurance, is designed to protect a school against parents becoming unable to make regular payments into a school programme. By paying an extra premium, over and above the basic theft and damage policy, the school is able to claim against some of its losses in some circumstances.
There is a qualifying period of 60 days from the start of the policy before a claim can be made. When a parent is unable to make their agreed payment it is the responsibility of the school to provide documentary evidence that the conditions of the policy are met i.e. the claim is based on:
- Illness/accident (but there are several excluded conditions such as back pain, whiplash, stress, and self-inflicted conditions). The policy also does not apply if the pupil is ill.
- Unemployment (only if the parent has been in work for 6 months, if they had not received pay in lieu of notice, and it does not apply to seasonal workers and those who have retired, resigned or took redundancy, or were fired).
How much does it cost?
The policy is normally based on the replacement cost of the equipment + VAT. Typically it would be around 2% for one year, 3% for 2 years and 4.5% for 3 years.
How much can the school claim?
The school will get back a benefit equivalent to one monthly repayment AND one of the following:
- The Early Settlement Figure if the school takes the computer back from the pupil
- The value of two more monthly repayments if the school allows the pupil to keep the computer
What are the disadvantages?
- It is vital that parents are not made aware of the policy. If they did know, it could invalidate the cover.
- The reasons for non-payment are very specific so will not cover all eventualities.
- When a parent stops making their payments, the school is expected to provide significant documentary evidence that their claim meets the conditions of the policy.
- If the school wants to retain their Gift Aid eligibility i.e. every child is provided with a device to use in the classroom or at home, then the Gap Insurance only provides for the recovery of 3 months’ repayments.
- The recovery of a device from a pupil due to non-payment by parents would contradict the principle of equity of access that is required for Gift Aid tax relief to apply. A school cannot benefit from Gift Aid whilst being prepared to remove a device from a pupil on the grounds of non-payment.
- Should a family take the device, and efforts by the school to trace it prove unsuccessful, then this would be classified as theft and covered by the basic theft and damage policy, making the Gap Insurance unnecessary.
- The 60-day Qualifying Period will limit the value of the cover to schools as most donors that fail to make their donations do so during the very first weeks of the programme.
What are the advantages?
- If the school is prepared to remove a device from a student because of their parent’s non-payment, then they can reduce some of the risk inherent in a voluntary contribution.
- If the school is not prepared to remove a device from a student when the parents are unable to pay then they can recover a small element (3 months) of the lease repayment costs through the GAP policy and still qualify for Gift Aid.
Can a school claim Gift Aid and take out Gap Insurance?
Yes, as long as it agrees that no pupil will be penalised by the recovery of their computer when their parents are unable to keep making the payments towards the school programme.