GAP insurance
If your car is stolen or written off, there can be a big difference between the amount your car insurance provider will pay out and the price you originally paid for it.
GAP insurance can cover this difference. But do you really need it? Read our guide to find out if it’s worth it for you.
If your car is stolen or written off, there can be a big difference between the amount your car insurance provider will pay out and the price you originally paid for it.
GAP insurance can cover this difference. But do you really need it? Read our guide to find out if it’s worth it for you.
60-second summaryHere’s GAP insurance in a nutshell:
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What is GAP insurance?
GAP insurance, or Guaranteed Asset Protection insurance, can cover the difference between the price you originally paid for your car and its current market value.
It could be useful if your car is written off or stolen because your insurance provider may only pay out what it’s worth at the time of the incident. Bridging the financial gap could help cover the cost of buying a new vehicle or pay off the amount still owed on a car bought on finance.
GAP insurance is entirely optional and you’re under no obligation to buy this kind of cover.
Car depreciation
How quickly your car loses value depends on the make and model. But, according to MoneyHelper, your new car could be worth 15-35% less by the end of its first year and more than 50% less after three years.
What’s happening with GAP insurance?
In February 2024, The Financial Conduct Authority (FCA) paused GAP insurance sales in the UK on the grounds that providers weren’t offering fair value to customers.
According to data collected by the FCA in 2022, only 6% of the premiums paid by GAP insurance customers were paid out in claims. This meant that up to 70% of the insurance premium values were being paid out as commission to those involved in selling the insurance.
However, since action was taken to improve fair value, several insurance providers have been granted permission to start selling GAP insurance again.
The FCA is working with the rest of the GAP insurance market to raise standards across the board. And it has also set out rules to help customers make informed decisions on whether to buy GAP insurance.
These include:
- Providing clear information explaining the features, benefits, exclusions and total cost of GAP insurance.
- A four-day deferral period. After being given information about how GAP insurance works and its cost, you have a few days to shop around and weigh up your options before deciding whether to buy.
- A cooling-off period that allows you to cancel if you change your mind. This varies in length depending on the policy, but is typically between 14 and 30 days.
Types of car GAP insurance
There are six main types of GAP insurance policy:
- Finance cover – if you’ve taken out car finance, this will cover outstanding repayments if your car is written off but you still owe the finance company.
- Return-to-invoice – covers the difference between your car insurance payout and the exact invoice price you paid for your car.
- Return-to-value – instead of paying out what you paid for the car upfront, this tops up the difference between the payment from your insurance provider and your car’s value when it was new.
- Vehicle replacement – covers the new price of the exact model and specification of your car, even if the price has gone up. This could be useful if you negotiated a discount with a dealer at the time you originally bought the car.
- Negative equity cover – offers protection if the value of your car falls, leaving it worth less than the loan amount you’ve taken out on the car.
- Lease cover – also called Contract Hire GAP insurance, this could cover all pre-determined repayments that come with your leasing agreement. This may include the early repayment charge and sometimes even the deposit you paid at the beginning of your contract.
What is excluded from GAP insurance?
There are some things GAP insurance typically won’t cover:
- You won’t be covered if you only have third-party insurance. You must have comprehensive car insurance.
- You won’t be covered for any claims resulting from you breaking the law. For example, driving under the influence or without a valid licence.
- Cars over a certain age or mileage may not be covered. And it may be harder to find cover for high-value vehicles.
- You’ll only be covered if your car is either stolen or deemed a ‘total loss’ by your insurance provider.
- You likely won’t be covered if the total loss claim is the result of an accident where a non-named driver was behind the wheel.
- Standard GAP insurance typically won’t cover cars used for business, or for hire and reward. Vehicles used in racing competitions and rallies will also be excluded.
- You won’t be covered for any amount deducted by your insurance provider. For example, due to unpaid premiums.
- GAP cover won’t pay out for non-standard modifications you added after you bought the car.
- Insurance providers may only cover cars that are listed in Glass’s Guide – an industry-wide vehicle valuation service.
Is GAP insurance worth it?
GAP insurance might be worth it if:
- You took out a large finance loan to buy your car and you could owe more than the car is worth at market value if it’s written off as a total loss.
- Your car is an expensive model that depreciates very quickly.
- Your car is hired on a long-term lease.
- Your car is only a couple of years old, but you want a brand-new replacement if it’s written off as a total loss.
GAP insurance might not be worth it if:
- Your car is less than a year old and you have new car replacement cover included in a comprehensive car insurance policy. Check the terms and conditions of your policy to make sure.
- You’d be happy with a like-for-like replacement for the car and don’t need it to be a brand-new vehicle.
- You have a second-hand car and there’s not much difference between the purchase price and the price your insurance provider will pay out.
How does GAP insurance work?
You can normally buy GAP insurance either as an add-on to your comprehensive car insurance or from a different provider as a standalone policy. You can’t buy GAP cover if you have third-party only car insurance or a third-party, fire and theft policy.
If your car is stolen or written off during the policy term, GAP insurance can pay out in addition to your comprehensive car policy.
For example, say you buy a £25,000 car that depreciates by 20% after one year of driving. If your car was written off at this time, your insurance provider would pay out the current market value of £20,000.
GAP insurance could cover the extra £5,000 you paid, so you can get a new car of the same value.
Here’s how GAP insurance works, from taking out a policy to making a claim.
Taking out GAP insurance
Most GAP insurance providers will require you to take out GAP insurance within 12 months of buying your car. It’s typically associated with new cars because these tend to lose their value faster than second-hand cars.
For that reason, although it’s possible to find GAP insurance for used cars, it may be less worthwhile.
Policies vary in term length, but typically last between one and five years. Before you take out a policy, it’s worth shopping around to make sure you’re getting a good deal.
Once you’ve found a suitable policy, read through the terms carefully so you understand what’s covered and what’s not.
You can’t get a GAP insurance quote with Compare the Market.
Making a claim on your insurance
If your car is written off or stolen during the policy term, you’ll first need to claim on your car insurance policy. If that claim is approved and your provider agrees that the car is a total loss, you should contact your GAP insurance provider before you accept their settlement.
There may be a time limit to claim on your GAP insurance. Check the policy terms to understand the process and what information you’ll need to give.
Getting your payout
If both claims are approved, you’ll get two payouts. The first, from your regular car insurance provider, will cover the value of the car at the time of the damage/theft.
The GAP insurance payout should cover any shortfall agreed on the policy terms, up to the maximum claim limit.
If you bought your car on finance, check with your GAP insurance provider to see how any outstanding loans will be settled. They may not be automatically paid off, even if you bought your GAP insurance from your car finance or lease provider.
Resolving problems with your claim
If you believe your claim was unfairly rejected or you’re unhappy with the outcome, you can make a complaint through your GAP insurance provider’s official complaints process.
If you’re not satisfied with their response, you can take your complaint to the Financial Ombudsman Service.
How much is GAP insurance?
The cost of GAP insurance can vary significantly, depending on:
- The make, model, age and value of your vehicle – more valuable cars are more expensive to insure
- The contract length – GAP insurance policies typically run from one to five years, often to align with a car finance or lease agreement
- The type of policy you choose – higher levels of cover will usually cost more.
How can I get cheaper GAP Insurance?
Though you might have less choice in policies currently, there are a couple of tactics that may help you get a cheaper GAP insurance quote.
Consider the type of GAP insurance you’re buying
A vehicle replacement policy could be more expensive than a return-to-invoice policy, because the potential payout could be higher. Consider your needs carefully before you commit to a policy.
Shop around and compare quotes
Don’t just choose the first policy that you’re offered. An online GAP insurance comparison could bag you a better deal.
Are there any alternatives to GAP insurance?
An agreed value policy guarantees a set payout if your car is written off or stolen. The payout is based on the car’s market value at the start of the policy and the insurance provider ignores any depreciation that has taken place since.
This type of policy is aimed at drivers of unique and rare vehicles, such as high-performance cars, classic cars, kit cars and some modified cars. You’ll need to produce extensive paperwork to show the original value of the car.
While your payout might be higher with an agreed value insurance policy, your premiums are likely to be higher too. You’ll also have less choice as there are fewer providers offering this type of cover.
Please note you can’t compare agreed-value insurance policies with Compare the Market.
Compare car insurance
You can’t get a GAP insurance quote with Compare the Market. But we can help you compare quotes for car insurance.
Get a quote today and see if you could start saving.
Frequently asked questions
Are GAP insurance policies just for new cars?
No, GAP insurance isn’t just for new cars, although it’s typically more useful for brand-new vehicles. That’s because new cars tend to depreciate much faster than used cars.
You can get GAP insurance for used cars. Just keep in mind that the benefits are potentially far less significant.
Can you buy GAP insurance after you buy a car?
Yes, you can buy GAP insurance after you’ve bought a car. But most insurance providers will require you to take out cover within 12 months of buying the car.
There are some providers, however, that will let you take out GAP cover after 12 months.
What is the maximum GAP insurance will pay?
The maximum your GAP insurance will pay out depends on the type of cover you choose and the maximum claim limit that’s detailed in your policy.
The maximum claim limit is usually based on how much your car is expected to depreciate over time. And, in some cases, it could mean you’re left short.
Not all GAP insurance providers have an upper claim limit. But you could end up paying hefty premiums for that privilege.
