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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Last Updated 12 AUGUST 2022

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.

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 12 months, and up to 50% or more in the first three years. 

So, if you buy a car for £20,000, three years down the line it could be worth half the amount – £10,000. 

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. 

Did you know?

When it comes to fastest-depreciating cars, the Maserati Quattroporte often tops the list. It’s estimated that the luxurious Italian saloon loses around £53,000 in value over the first three years.

Why get GAP insurance?

While GAP insurance isn’t a legal requirement like regular car insurance, there’s a few reasons why you might want to 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.
  • 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 your car insurance. 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 brand-new.
  • 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 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, it 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. 

Do you need GAP insurance?

Before you buy GAP insurance, it's worth having a 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. The price of your policy can depend on:

  • The make, model, and value of your car
  • Contract length – GAP insurance policies typically run from two to five years
  • The type of policy you choose.

In today’s market, a three-year GAP insurance policy will typically range between £100 and £300. That said, the more expensive the car, the more expensive your cover is likely 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 a 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. 

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. 

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 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. 

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.

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.

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