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?

Kate Hughes
Car insurance expert
5
minute read
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Posted 2 SEPTEMBER 2020 Last Updated 25 NOVEMBER 2021

What is GAP insurance?

If your car is written off or stolen, your insurance provider may only pay out its current market value, not the price you bought it for. Because the value of cars, especially new cars, falls very quickly, you could find yourself out of pocket. 

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. 

GAP insurance is entirely optional and you’re under no obligation to buy this kind of cover at any stage.

Why get GAP insurance?

While GAP insurance isn’t a legal requirement like regular car insurance, there’s a few reasons why you should consider it. 

GAP insurance might be useful if: 

  • You took out a large finance loan to buy your car and you owe more than it’s worth. This is known as being in negative equity. If your car is written off, you’ll still be responsible for making the rest of the monthly repayments on your outstanding finance. This could mean paying for months or even years for a car you don’t own any more.
  • The type of car you bought depreciates very quickly. The average car can lose over half its value in the first three years. This varies depending on the make and model you’ve bought. Specific market conditions might occasionally keep values higher for longer, for example, the current demand for electric vehicles, but these are unusual and certainly the exception to the general rule. GAP insurance could protect you against the loss of its original value.
  • Your car is hired on a long-term lease. If your car is written off, you may end up owing more to the lease hire company than your insurance provider is prepared to pay in settlement.
  • 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. Many car insurance providers offer a new car replacement if your car is written off within 12 months of the date it was first registered. Check the terms and conditions carefully to make sure your policy offers this benefit.
  • You’d be happy with a like-for-like replacement for the car you had at the time it was written off – you don’t mind that the replacement car isn’t brand-new.
  • You have a second-hand car. Most used cars have a slower rate of depreciation than brand-new cars. If the difference in purchase price and the price your insurance provider will pay out is reasonably small, GAP insurance may not be worth it.

Types of GAP insurance

There are several types of GAP insurance policy: 

  • Finance GAP insurance – if you’ve taken out car finance to buy your car on a contract hire basis, this will cover the amount you still owe the finance company, if your car is written off. This means you shouldn’t need to continue making your monthly repayments on your outstanding finance agreement. This is the standard, most common type of GAP insurance.
  • Return-to-invoice GAP insurance – this covers the difference between your car insurance pay-out and the exact invoice price you paid for your car. It can be used for both new and second-hand cars. This type of GAP cover can be especially useful for cars that fluctuate in value, offering you a better sense of security knowing that you’ll be covered for what you paid.
  • Return-to-value GAP insurance – this is a bit like the return-to-invoice insurance above. However, instead of paying out what you paid for the car up front, it tops up the difference between the write-off settlement from your insurance provider and how much it was worth when you bought it.
  • 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 can be very useful if you’re a good haggler and managed to negotiate a discount with a dealer at the time you originally bought the car. This type of GAP insurance is only available for a new vehicle though.
  • Negative equity GAP insurance – this type of 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. This is useful if you’re part-exchanging the car when upgrading to a more expensive model, as GAP insurance covers what would have otherwise been lost.
  • Lease GAP insurance – if you’ve leased your car or bought it on a contract hire purchase, this will cover you not just for the remaining repayments you’d still need to pay after writing the car off, but it will also cover you for any of the extra costs that were part of your contract agreement. For example, most agreements will include early repayment charges, which can be very expensive, just like on a mortgage. With lease GAP insurance, you won’t need to worry about it.

Do you need GAP insurance?

Before you buy GAP insurance, it's worth having a really good think about whether it’s worth it for your circumstances and vehicle. 

Car dealers often used to try to sell GAP insurance to their customers alongside the car sale itself. This technique is now illegal at the point of sale and there must be at least two days between the day you receive a quote for GAP cover and the day you buy it – if you do. 

You’ll probably get a description of its benefits on the forecourt and a prompt follow-up afterwards though, so use the minimum two-day breathing space to make sure you’re happy it’s a policy you need, and to shop around before you go ahead.

How much does GAP insurance cost?

The cost of GAP insurance can vary significantly. This is because it tends to be bought in combination with new cars, which are among the most expensive. As with other types of car insurance policy, the make and model can make a big difference, with GAP insurance particularly useful for more expensive cars, where quick depreciation can hurt their long-term value the most. 

However, there are some things you can do to help get cheaper GAP insurance: 

  • Consider the type of GAP insurance you’re buying – if you’re looking for cheaper insurance, a vehicle replacement GAP insurance policy may not be the best option, as it will cover the price of a brand-new version of your model, even if the market price has risen. However, a return-to-invoice policy will only cover the difference between your standard insurance pay-out and the price you paid for the car. This type of cover may help you get a cheaper deal, but it’s important to consider all your options.
  • Look at the excess – as with most insurance policies, if you’re willing to increase the excess amount on your policy, you’ll normally find you can get a cheaper deal. Just make sure that you’re fully comfortable with the amount if you need to make a claim later.
  • Don’t buy direct from the car dealer straight away – as we’ve seen, dealers can’t sell you this kind of policy the same day as a vehicle purchase. But most new car dealers will follow up shortly after the sale and attempt to sell you GAP insurance cover. You’re far more likely to find a better deal than the one on offer and you’re under no obligation to buy from them. Your best option is to compare quotes and buy from an online provider
  • Negotiate – if you’ve found a better quote online, you can always use that to negotiate with your car seller. It’s worth a try and may get you a better deal.

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 in value much sooner than used cars. Therefore, GAP insurance is designed to cover you against that depreciation. 

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. 

What else should I consider before buying GAP insurance?

Be aware that you can only usually get GAP insurance if your main car insurance policy is fully comprehensive

You’ll only receive a GAP insurance pay out if your car is declared a total write-off or is unrecoverable. 'Unrecoverable’ is used to describe a vehicle that cannot be recovered or has been stolen. 

Like any other type of insurance, always make sure you read the policy terms and conditions before buying GAP insurance. 

What is not covered by GAP insurance?

Typical exclusions (things that are not covered by GAP insurance) include: 

  • Any amount deducted by your insurance provider. For example, as a result of 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 

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 idea behind 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. 

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. 

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