Guaranteed Asset Protection (GAP) insurance covers the shortfall if your car is declared a total loss or write-off by your car insurance provider, but the payout is less than you paid for your car.
Your car insurance will only pay out the current market value of your car, which will probably be a lot less than what you paid for it, even if you bought it recently, because of depreciation.
GAP insurance can cover that depreciation, so you can afford to buy a car at the same value you bought your last one for. It also means you won’t be stuck paying off finance for a car you no longer have.
GAP insurance is common with new cars, but you can also get GAP insurance on used cars.
Car’s depreciate fast. That means, if your car’s stolen or written off the insurance pay out at market value might not be enough for you to replace it with something similar, or even to pay off any finance you took out to buy your car.
For example, if you bought your car on finance three years ago for £20,000 and it depreciated by 60% in those three years, the current market value is £8,000.
If your car is then written off, your insurer would pay the market value of £8,000 (minus any excess), so you’re £12,000 out of pocket. GAP insurance would cover that £12,000 so you can get back to driving a brand-new car.
GAP insurance provides some additional financial peace of mind if your car’s written off, but it isn’t right for everyone.
It might be right for you if:
But you might not need it if:
Before taking out a policy, make sure you can afford the price of the premium on top of your regular car insurance cover and any possible monthly loan or leasing fees.
There are five main types of GAP insurance.
They all make up the shortfall for depreciation on your car, but work in slightly different ways.
If your car is written off or a total loss, an RTI policy will pay the difference between the original purchase price and the payout received from your insurer. It might even cover any outstanding finance.
RTI is for cars bought from a dealer within the last six months.
Most insurers offer AVC for cars bought privately, or from a dealer after the RTI cut off point.
It covers the difference between the insurance valuation at the time it was written off and the value of the car when you started the policy.
This type of cover is for lease vehicles that you don’t own. Most insurers will cover outstanding rental payments or the termination fee, as well as any shortfall in the market value payout your insurer gives you.
This is for if you bought your car on finance or PHP. Finance GAP pays out the difference between the amount of outstanding finance and the market value of the car paid out by your main insurer. If the market value is greater than the amount of outstanding finance then no payout is made.
If you bought your car using finance and need cover for the finance element then an RTI policy with finance cover is available through GoCompare. If your car’s a total loss, this policy will pay out either the amount of outstanding finance or the original invoice price you paid for the vehicle - whichever is higher.
In the event of a total loss, VR provides a payout equal to the difference between the cost to replace the vehicle with a near identical specification as yours was on the day you first took delivery and the market value paid out by your main insurer. This type of cover is designed to protect you should the cost of a replacement vehicle increase. This type of policy is not currently available through GoCompare.
Firstly, did you buy your car from a dealer or privately, and how did you pay for it - up-front or finance?
If you got your car on finance, finance GAP policies will also settle the outstanding finance, even if it’s more than the difference between the invoice price you paid and the market value.
If you bought a used car for cash, agreed value cover GAP insurance might be more suitable.
When you get quotes with us, you’ll be asked questions that mean you’ll only be shown appropriate policies.
If you buy a GAP insurance policy from the car dealer, you could be paying more than you need to, with prices ranging from £300 upwards.
Buying separately from the dealership could cost around £150 to £300 for a three-year policy, but generally the more expensive the car, the more expensive your cover will be.
GAP insurance is usually paid for upfront. When you’ve just paid for a new car the last thing you want to do is pay for additional cover, but you should consider how you’d feel if you couldn’t get back the full cost of your car.
If you do decide to buy, it’s best to shop around because not all insurers provide the same level of cover.
According to research conducted by Which? in September 2019, car dealerships were charging up to £367 more than independent insurers.
The good news is that car dealerships aren’t allowed to sell you GAP insurance at the same time as you buy a car from them - the Financial Conduct Authority (FCA) says you must have breathing room to shop around. Specifically, you must have a ‘pause in sale’ of two days.
In reality that means on the day you pick the car up, the dealership starts the sales process. Then they’ll ask you to come back to finalise any paperwork or the credit agreement a few days later - it’s more than likely that’s when you’ll be asked whether you want a GAP policy, so use the waiting time to research how much you should be paying and compare policies.
Watch out for these common exclusions:
GAP insurance is usually associated with new cars because they depreciate in value much faster than used cars and GAP insurance is designed to cover depreciation.
You can still get GAP insurance for used cars, but the benefits are potentially smaller so it might not be worthwhile for the cost.
Gocompare.com introduces you to i-Wonder to provide GAP insurance quotes. Gocompare.com’s relationship with i-Wonder is limited to that of a business partnership, no common ownership or control rights exist between us