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?
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?
What is GAP insurance?
GAP insurance, officially known as Guaranteed Asset Protection, covers the difference, or shortfall, between the current market value of your car and the price you originally paid for it. This is designed to protect you if you’re making a total loss claim.
If your car is written off or stolen, your insurance provider may only pay out its current market value, not the price you originally paid for it. This is designed to protect you if you’re making a total loss claim.
This is particularly important to think about, because cars are often a long-term financial commitment. If you bought your car on finance, but it's written off or stolen before you’ve paid it off, you’d still be paying for a car you can no longer drive. GAP insurance provides extra protection against that.
GAP insurance is entirely optional and you’re under no obligation to buy this kind of cover at any stage.
How does GAP insurance work?
GAP insurance is all about mitigating the dreaded ‘depreciation’ – the difference in your car’s value when you originally bought it and the amount it’s worth right now. As soon as you get the keys to your new car and drive it away, it will begin to lose value.
Depending on the make and model, a brand-new car can lose 15-30% of its original value in the first year, and up to 50% or more in the first three years.
If your car is stolen or written off during that time, GAP insurance can pay out the difference in the amount you’d get from your insurance provider and the amount it would cost you to replace your car with a new or equivalent model.
Taking out GAP insurance
GAP insurance is usually taken out within a year of buying your car. That’s because that’s the time it’s at its most effective and valuable to you.
However, there are different types of GAP insurance available and they work in slightly different ways. For example, you can take out GAP insurance for a used car that’s more than three years old.
Be aware that you can only usually get GAP insurance if your main car insurance policy is fully comprehensive.
Making a claim on your insurance
If your car is written off or stolen, you’ll first need to claim on your regular car insurance policy. If that claim is approved, you’ll then need to claim on your GAP insurance for the second payout which could cover the rest of the car’s value.
You should notify your insurance provider about your car’s damage/theft as soon as possible. You should also file a police report if necessary and share it with your insurer.
Your insurance company will then consider any and all evidence (eye-witness accounts, dash cams, CCTV etc.) before making a final verdict on whether to approve or reject your claim.
Getting your payout
If both claims are approved, one from your regular car insurance provider and the other from your GAP insurance provider, you’ll receive two payouts.
The first, from your regular provider, will cover the value of the car at the time of the damage/theft. The GAP insurance payout should cover the rest. That could be paying off an outstanding finance agreement, the price you paid when buying it new, or whatever your policy wording states.
It’s a good idea to be in contact with both providers during the whole claims process. Your GAP insurance provider may need to agree on your other policy’s payout, before agreeing to pay out the difference.
What does GAP insurance cover?
Depending on the type of GAP insurance policy you take out, GAP insurance could cover:
- The price you paid when you bought the car.
- The car’s value when it was new — if, for example, you bought a used car.
- The cost of replacing your car (the same make, model, age and specifications).
- The outstanding balance of a car finance agreement.
- The outstanding balance on a lease agreement.
GAP insurance exclusions explained
Typical exclusions include:
- Any amount deducted by your insurance provider. For example, due to unpaid premiums
- Non-standard modifications you added after you bought the car
- Warranty charges
- Insurance premium costs
- Fuel
- Road tax
- Car insurance excesses over £250.
Is GAP insurance worth it?
While GAP insurance isn’t a legal requirement like regular motor insurance, there’s a few reasons why you might want to consider it.
GAP insurance might be worth it if:
You took out a large finance loan to buy your car and you owe more than it’s worth.
- Your car 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 in the event of 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.
Types of car GAP insurance
There are six main types of GAP insurance policy:
- Finance GAP insurance – 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 GAP insurance – covers the difference between your car insurance pay-out and the exact invoice price you paid for your car.
- Return-to-value GAP insurance – this can be a good option if you buy a used car. Instead of paying out what you paid for the car upfront, it tops up the difference between the write-off settlement from your insurance provider and your car’s value when it was new.
- Vehicle replacement GAP insurance – 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 managed to negotiate a discount with a dealer at the time you originally bought the car.
- Negative equity GAP insurance – 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 GAP insurance – also called Contract Hire GAP insurance, leasing GAP insurance can cover all pre-determined repayments that come with your leasing agreement, including the early repayment charge and, sometimes, even the deposit you paid at the beginning of your contract.
How much does GAP insurance cost?
The cost of GAP insurance can vary significantly. The price of your GAP policy can depend 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 two to five years
- The type of policy you choose. Higher levels of cover will usually cost more.
- The excess amount. This could include a compulsory and voluntary excess. The higher the excess, the cheaper your premiums tend to be.
How can I get cheaper GAP Insurance?
There are some things you can do to help get cheaper GAP insurance:
- Consider the type of GAP insurance you’re buying – vehicle replacement policies can be more expensive as they cover the total cost of replacing your car with a brand-new model. A return to invoice policy can be cheaper as you only get back what you paid for the car.
- Pay a higher excess – this can usually bring down the cost of your premium. Just make sure you can afford to pay it if you need to make an insurance claim.
- Shop around and compare quotes – buying directly from a car dealership might not be the most cost-effective option. Comparing quotes online might bag you a better deal.
- Negotiate – if you find a cheaper deal online, you could always go back to the dealership and see if they’re prepared to offer you a better deal.
Compare car insurance
Financial Conduct Authority (FCA) rules, introduced in September 2015, prohibit car dealers from selling you GAP insurance during the sale of the car. This is to allow you time to consider your options, compare insurance with different providers and avoid rushing into a deal you’re uncomfortable with.
You can’t currently get a GAP insurance quote with Compare the Market. But if you’re looking to shop around for car insurance, compare quotes with us to find a deal that suits you.
Get a quote today and see if you could start saving.
Frequently asked questions
Are GAP insurance policies just for new cars?
GAP insurance is arguably most useful as an addition to new car insurance policies because new cars tend to depreciate much sooner than used cars.
However, you can still get GAP insurance for used cars. Just keep in mind that the benefits are potentially far less significant, depending on the age of the vehicle, which may make the extra cover less worthwhile.
Can you buy GAP insurance after you buy a car?
Yes, you can buy GAP insurance after you’ve bought a car, and you can even buy a policy for a second-hand car that is several years old.
However, the main point of GAP insurance is to protect you against the decrease of your car’s value, between you buying the car new and its market value after a few years. GAP insurance is most beneficial when you’re buying a car brand new, so waiting before taking out a policy will make it less worthwhile.
What is the maximum GAP insurance will pay?
How much your GAP insurance will pay out depends on the type of policy and level of cover you get.
A GAP insurance policy usually includes a maximum level of cover, which means you’ll only be able to claim for a certain amount. This will be agreed when you take out the policy, so make sure you get enough cover for your vehicle. Some GAP insurance providers may offer no upper limit on the maximum level of cover, which means you could claim for even the most expensive cars. However, this will cause your monthly premiums to be more expensive, so it’s a balancing act.
