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? Read our guide to find out if it’s worth it for you.
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? Read our guide to find out if it’s worth it for you.
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 originally paid for it. GAP insurance, officially known as Guaranteed Asset Protection, can cover the difference or shortfall between the two so you can replace your car with a new model.
They say a brand-new car starts losing its value as soon as you drive it off the forecourt. How quickly your car depreciates in value depends on the make and model but, according to Moneyhelper, your new car could be worth 15-35% less by the end of its first year. And because the pay-out from your insurance provider normally only covers what the car is currently worth, you could be left out of pocket.
If you’ll be happy with a replacement car of a similar age or condition, then a comprehensive policy should be enough cover for you. But GAP insurance could be useful in some cases: for example, if you’re buying a car on finance and risk owing more than the potential pay-out from a ‘total loss claim’.
GAP insurance is entirely optional and you’re under no obligation to buy this kind of cover at any stage.
What’s happening with GAP insurance?
The Financial Conduct Authority (FCA) has been concerned for several years about GAP insurance products not providing fair value to customers. Its latest data, collected in 2022, found that only 6% of the premiums paid by GAP insurance customers were paid out in claims.
For that reason, the FCA has asked GAP insurance providers to take immediate action to prove that their customers are getting a fair deal. As a result, as of February 2024, around 80% of the providers of GAP insurance have agreed to pause sales of GAP insurance while they work to make their products better value for customers.
Types of car GAP insurance
There are six main types of GAP insurance policy:
- Finance cover – 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 – covers the difference between your car insurance pay-out and the exact invoice price you paid for your car.
- Return-to-value – instead of paying out what you paid for the car upfront, this tops up the difference between the payment from your insurance provider and your car’s value when it was new.
- Vehicle replacement – 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 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.
- Lease cover – also called Contract Hire GAP insurance, this could 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 does GAP insurance work?
You can normally buy GAP insurance either as an add-on to your comprehensive car insurance or from a different provider as a standalone policy.
If your car is stolen or written off during the policy term, GAP insurance can pay out in addition to your comprehensive car policy.
For example, say you buy a £25,000 car that depreciates by 20% after one year of driving. If your car was written off at this time, your insurance provider would pay out the current market value of £20,000. GAP insurance could cover the extra £5,000 you paid so you can get a new car of the same value.
Here’s how GAP insurance works at each stage, from taking out a policy to making a claim.
Taking out GAP insurance
GAP insurance is usually taken out within a year of buying your car. It’s typically associated with new cars because these tend to lose their value faster than second-hand cars.
However, you can find GAP insurance cover for used cars too.
Before you take out a policy, make sure it’s worthwhile for you financially. It’s worth shopping around at this point to make sure you’re getting a good deal. Please note that you can’t get a GAP insurance quote with Compare the Market.
Once you’ve found a suitable policy, read through the terms carefully so you understand what’s covered and what’s not.
Making a claim on your insurance
Your GAP insurance policy will remain active as long as you keep up with your premium payments.
If your car is written off or stolen during the policy term, you’ll first need to claim on your car insurance policy. If that claim is approved and your provider agrees that the car is a total loss, you should contact your GAP insurance provider before you accept their settlement.
Note that there may be a time limit to claim on your GAP insurance. Check the policy terms to understand the process to follow and what information you’ll need to give.
Getting your pay-out
If both claims are approved, you’ll receive two pay-outs. The first, from your regular car insurance provider, will cover the value of the car at the time of the damage/theft. The GAP insurance pay-out should cover any shortfall agreed on the policy terms, up to the maximum claim limit.
If you bought your car on finance, check with your GAP insurance provider to see how any outstanding loans will be settled. Don’t assume that a loan will be paid off automatically, even if you bought your GAP insurance from your car finance or lease provider.
Resolving problems with your claim
If you believe your claim was unfairly rejected or you’re unhappy with the outcome, start by making a complaint through your GAP insurance provider’s official complaints process. If you’re not satisfied with their response, you can take your complaint to the Financial Ombudsman Service.
What does GAP insurance cover?
Depending on the type of GAP insurance policy you take out, GAP insurance could cover the shortfall for one of the following expenses:
- 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.
What is excluded from GAP insurance?
There are some common exclusions to be aware of with GAP insurance, including:
- Your car must be covered by comprehensive car insurance – if you have third-party insurance, you won’t be covered for theft or damage to your own vehicle.
- You won’t be covered for any claims resulting from you breaking the law, for example driving under the influence or without a valid licence.
- Cars over a certain age or mileage may not be covered. And it may be harder to find cover for high-value vehicles.
- You’ll only be covered if your car is either stolen or is completely beyond repair, as judged by your insurance provider.
- You likely won’t be covered if the total loss claim is the result of an accident where a non-named driver was behind the wheel.
- Standard GAP insurance typically won’t cover cars used for business, or for hire and reward. Vehicles used in racing competitions and rallies will also be excluded.
- You won’t be covered for any amount deducted by your insurance provider: for example, due to unpaid premiums.
- GAP cover won’t pay out for non-standard modifications you added after you bought the car
- Insurance providers may only cover cars that are listed in Glass’ Guide, an industry-wide vehicle valuation service.
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 could owe more than the car is worth at market value, if it’s written off as a total loss.
- Your car is an expensive model that 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 if it’s written off as 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.
How much is GAP insurance?
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 one to five years, often to align with a car finance or lease agreement.
The type of policy you choose: higher levels of cover will usually cost more.
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 – for example, a vehicle replacement policy could be more expensive than a return-to-invoice policy, because the potential pay-out could be higher.
Shop around and compare quotes – buying directly from a car dealership might not be the most cost-effective option. An online GAP insurance comparison could 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.
Did you know?
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Compare car insurance
GAP insurance products have been withdrawn by many insurance providers and car dealers while the FCA investigates the fairness of these policies. The FCA has asked GAP providers to pause sales while it works to make changes that will make GAP cover better value for customers.
You can’t 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 isn’t just for new cars, although this type of cover is mostly associated with brand-new vehicles. That’s because new cars tend to depreciate much faster 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. Depending on the type of policy, there’s often a time limit window in which to buy GAP cover for your new car. This can typically range from 90 to 365 days, depending on the provider and the type of GAP cover.
Some providers will let you take out GAP cover for cars that are over 12 months old. Check the T&Cs as some policies will restrict their cover to vehicles under a certain age or mileage.
What is the maximum GAP insurance will pay?
The maximum your GAP insurance will pay out depends on the type of cover you choose and the maximum claim limit that’s detailed in your policy.
The type of cover will determine what the policy will pay out for. For example, that could be the outstanding repayments on your car loan or the cost to replace your car with a brand-new model.
A GAP policy often includes a maximum level of cover, which means you’ll only be able to claim up to a certain amount. It’s usually based on how much your car is expected to depreciate over time. In some cases, it could mean you’re left short.
Some GAP insurance providers offer no upper claim limit. However, this could mean your monthly premiums are more expensive, so it’s a balancing act.
