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 is it an add-on you really need?

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 is it an add-on you really need?

Daniel Hutson
From the Motor team
minute read
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Posted 2 SEPTEMBER 2020

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.

When you buy a new car, its value will begin to depreciate as soon as you drive it out of the dealership.

Brand new cars lose their value very quickly. On average, around half the original price will be lost over the course of three years - although it partly depends on the make and the amount you use the car.

If your car is written off, your insurance provider may only pay out the current market value, not the original purchase price. In the event of a total write off, if your car is more than 12 months old, you could find yourself out of pocket. This is known as a shortfall.

GAP insurance is add-on cover that can be bought in addition to your main car insurance policy. It could give you the peace of mind that, if the worst should happen to your car, its purchase value is covered.

Types of GAP insurance

There are three main types of gap insurance policy:

  • Finance GAP insurance – if you’ve taken out finance to buy your car on a contract hire basis, this will cover the amount you still owe the finance company.
  • Return-to-invoice GAP insurance – this covers the difference between your car insurance pay-out and the exact price you paid for your car. It can be used for both new and second-hand cars.
  • Vehicle Replacement GAP insurance – covers the new price of the exact model and specification of your car, even if the price has gone up.

Do you need GAP insurance?

Before you buy GAP insurance, you should decide if it’s worth 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.
  • The type of car you bought depreciates very quickly.
  • 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.

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 to 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

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. However, the make and model can make a big difference, with gap insurance particularly useful for more expensive cars, where the 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 – there are three main types of gap insurance, with each offering different benefits. 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 payout 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.
  • Excess – like 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 – 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 there, and you’re under no obligation to buy with them. For the best deal, 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 for a better deal. It’s worth a try and may get 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 for fully comprehensive 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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