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What is GAP insurance, and do you need it?

What is GAP insurance, and do you 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 is it an add-on you really need?

Daniel Hutson
From the Motor team
minute read
posted 11 FEBRUARY 2020

What is GAP insurance?

GAP insurance, officially known as Guaranteed Asset Protection, covers the difference 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.

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:

  • Finance GAP insurance – if you’ve taken out finance to buy your car, 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.

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.

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

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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.

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