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GAP Insurance

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What is GAP insurance?

Guaranteed Asset Protection (GAP) insurance protects you against financial loss if your vehicle is declared a total loss or write-off by your car insurance provider.

For example, if you have an accident in your car and it’s written off, your comprehensive car insurance will provide a financial settlement for the loss of your vehicle. Unfortunately, your car insurance only pays out the market value, which is likely to be less than the price you paid for the car.

It's a standalone policy that’s designed to cover the difference between the price you paid for the car and its current market value.

So, if you bought a car on finance for £20,000 and it depreciated by 60% in three years, the car would be worth £8,000. If the car was 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.

After an accident, contact both your car insurance provider and your GAP provider as soon as possible.

what is gap insurance for cars?

How much is GAP insurance?

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.

Features of GAP insurance

As with all types of insurance, there are often big differences between policies.

Two key factors to consider when buying GAP insurance are whether you bought the car from a dealer or privately, and how you paid for it. It’s important you enter this information accurately to get a policy that suits your needs.

If you got your car on finance, some 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 have comprehensive car insurance, read the small print – some insurers offer new car replacement if it’s under 12 months old, so you might not need additional cover.

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Other GAP products

There are other types of GAP policies available:

Vehicle replacement (VR) – 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 this site.

Finance gap – in the event of a total loss where you purchased a 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.

You can’t buy this type of cover on its own through this site, but a similar type of cover is available if you have a lease car and it's referred to as Lease Hire GAP.

If you have purchased a car using finance and require cover for the finance element then a Return to Invoice policy with finance cover is available through this site. In the event of 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.

Do I need GAP insurance?

You should consider the trade-in value of your current car and whether you could afford any new payments or if you’d be willing to use your savings to make up the difference.

GAP insurance provides some additional financial peace of mind should your car be written off. 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.

GAP insurance exclusions

Watch out for these common exclusions:

  1. Your GAP insurance will only pay out if you have comprehensive car insurance

  2. Your car must be confirmed as a total write-off, and you will only receive payment after your claim has been successful

  3. It will not pay out if your car was written off as a result of drink- or drug-driving

  4. Nor will it pay out if someone else was driving your vehicle without a valid driving licence

  5. It won’t pay the difference if you underestimated the value of your vehicle when taking out GAP insurance

  6. It won’t cover any non-standard modifications you make to the car after purchasing it

  7. A GAP insurer may not provide cover if you pay over a certain annual value for your car insurance - read the small print closely

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