About Gap Insurance
Many people will only hear about GAP insurance when they buy a new vehicle at a dealership, as a salesperson will often try to sell them a policy. However, you are under no obligation to buy it.
That doesn’t mean GAP insurance is a waste of money though. If you’re unlucky enough to write off your vehicle or get it stolen, GAP insurance can come in handy by making sure you’re not left out of pocket.
When your vehicle is written off, your motor insurer will compensate you for its current market value.
However, because cars depreciate in value, losing up to 40% of their value in one year according to the AA, you will normally receive significantly less than the amount you paid for your vehicle. This is particularly problematic if you have your vehicle on finance, as your standard motor insurance may not cover the full cost of your outstanding finance.
GAP insurance can make up this shortfall, which means you are not left to pay the difference with your own money.
What is GAP insurance?
GAP insurance, short for Guaranteed Asset Protection insurance, is an optional insurance policy for your vehicle. Sometimes called shortfall insurance, it isn’t a substitute for your standard motor insurance policy, but instead, provides you with extra cover so you don’t lose out financially if your vehicle is stolen or written off.
Although your motor insurance will cover some of the costs of your lost vehicle, it will only pay out the amount that your vehicle is worth at that time, not the amount you originally paid for it. Because of depreciation, this will often be substantially less than you paid and is unlikely to be enough to clear any outstanding finance or pay for a brand-new replacement vehicle.
This is where GAP insurance can help, as it will cover the difference between your motor insurance payout and the value of your vehicle at the time of purchase.
What does GAP insurance cover?
GAP insurance covers the depreciation of a vehicle. It will cover the difference between your motor insurance payout if your vehicle is declared a total loss, and the amount you originally paid for the vehicle or the remaining finance you have left to pay.
GAP insurance policies can cover cars, vans, motorcycles, trucks and motorhomes.
How does GAP insurance work?
You can make a claim on your GAP insurance if your vehicle is declared a total write-off by your motor insurance firm and your insurance claim has been successful.
Depending on the type of policy you have, your GAP insurance will then pay you the difference between your insurance payout and either the amount you originally paid for your vehicle, the cost of a brand-new replacement, or the amount left outstanding on your finance agreement.
For example, if you buy a brand-new car for £20,000 and six months later it is written off, a car insurer will only pay out what it’s worth at that time, which could be £15,000. This would leave you £5,000 out of pocket.
GAP insurance is designed to make up the difference so, in the above example, it would pay out £5,000. This would make sure you receive the same amount of money as you originally paid for your car, which should be enough to buy a brand-new replacement car or to clear your outstanding car finance agreement.
Do I need GAP insurance?
GAP insurance is an optional policy; it’s not a legal requirement.
However, if you are wondering whether GAP insurance is worth it, you might want to consider getting it if:
- You have a vehicle on finance or on a lease. You would still need to repay the outstanding finance to the provider if you write off your vehicle and your motor insurance payout may not cover this. So, if you would struggle to make up this deficit yourself, GAP insurance could help.
- You would want to replace your vehicle with a brand-new replacement. Your motor insurance should pay for a vehicle of the same age and condition as the one you wrote off, but if you would prefer to replace it with a brand-new model, GAP insurance can cover this extra cost.
If you could afford to pay the difference between your motor insurance payout and your outstanding finance, then you may not need GAP insurance. However, you never know what the future may bring and how it could affect your finances, so GAP insurance can give you some extra peace of mind that you won’t be left out of pocket if you write off your vehicle.
You may not need GAP insurance if you have comprehensive car insurance and your car is under a year old. Policies may include new car replacement cover for the first 12 months, so check your car insurance documents to help you decide if you need GAP cover straightaway.
» MORE: Do I need GAP insurance?
Which type of GAP insurance is best for me?
There are several types of GAP insurance which are suitable for different situations.
Return to Invoice (RTI) GAP insurance is particularly suitable if you buy a new vehicle from a dealer. This policy will pay the difference between your motor insurance payout and the amount you originally paid for the vehicle.
Return to Value (RTV) GAP insurance, or Agreed Value, is normally taken out on used vehicles. You can get it whether you bought your vehicle from a dealer or a private seller. This policy will cover the difference between your motor insurance payout and how much your vehicle was worth when you took out the GAP policy.
Vehicle Replacement GAP insurance can cover the highest of: the amount you paid for your vehicle, the finance outstanding on your agreement, or the cost of a brand-new replacement vehicle. This means you are covered if your vehicle rises in value, or if you purchased your vehicle at a discount for less than its market value for example.
Vehicle Finance GAP insurance is designed for those who have their vehicle on finance. This policy will clear any finance that you have left to pay after your motor insurer has paid out.
How much is GAP insurance?
The cost of GAP insurance policies varies and will depend on the value of your vehicle, the type of policy you choose, the length of your policy, where you buy it from and whether you pay for your cover upfront or in instalments. Paying in instalments is likely to cost you more overall.
Also, policies purchased through dealerships can often be more costly than buying a standalone policy from an independent provider.
FCA analysis of the GAP insurance market showed that the average cost of GAP insurance in 2016-17 was £387 if you bought it as an add-on from a dealer, compared to £162 if you bought it as a standalone policy.
While these figures can vary widely depending on your circumstances, you are likely to find you will pay more for GAP insurance at a dealership just because of its convenience.
How long does GAP insurance last?
The length of a GAP insurance policy depends on the type of cover you buy and the age of your vehicle, as well as the provider that you bought it from.
Most GAP insurance policies can last for up to 5 years, although some providers may offer longer terms. You can choose the length of cover that best suits your needs.
Can I buy GAP insurance at any time?
The type of policy you want will determine when you can buy GAP insurance. If you opt for Return to Invoice or Vehicle Replacement GAP insurance, you will need to buy it within a certain number of days of purchasing your vehicle, often 180 days.
Some providers will allow you to buy GAP insurance within this period and defer the start date for up to one year, if you have new car replacement cover with your car insurance for example.
But you can still buy GAP insurance a year or more after your vehicle purchase. You should be able to buy cover with Return to Value or Vehicle Finance GAP insurance at any time, as long as your vehicle meets the provider’s age and mileage requirements.
GAP Insurance FAQs
You don’t need GAP insurance if you lease your vehicle, but it can be useful to have. If you write off your lease vehicle, you will still need to pay off your lease which your motor insurance payout may not cover. GAP insurance would cover this cost, which means you wouldn’t need to pay the difference yourself.
You don’t need GAP insurance on a new vehicle, but as they depreciate quickly, it can be useful to get. Because your new vehicle can lose value rapidly, GAP insurance can help to make sure you don’t lose out financially if you write your vehicle off soon after getting it as it will make up any shortfall.
Yes, you can buy GAP insurance on a used vehicle, although it is likely to be more useful for new vehicles as they depreciate faster. Because the rate of depreciation for used vehicles is slower, the difference between the insurance payout and what you paid for the vehicle is likely to be much smaller than with a new model.
To be eligible for cover, your used vehicle would need to be within the age and/or mileage limits set by the provider as GAP insurers will only cover vehicles up to a certain age or those with a maximum number of miles on the clock. Bear in mind that used cars may not be eligible for certain types of GAP policies.
Yes, you can get GAP insurance if you bought your car from a private seller rather than a dealer. However, you may not be eligible for all policies as, for example, many providers will only offer Return to Invoice and Vehicle Replacement cover if you bought your car from a dealer and have a VAT invoice.
Does GAP Insurance Cover Negative Equity?
GAP insurance covers the negative equity on a car finance deal if you owe more than the car is worth at the time of write-off. However, you may need to buy an extra policy if you want to cover negative equity carried over from a previous contract.
Buying GAP Insurance: Your Essential Guide
You can buy GAP insurance from an online insurer or from a dealership, but there are certain rules about when dealers can sell you a policy. Depending on the policy you choose, you may also need to get cover within a number of days of buying your car.
Is GAP Insurance Worth it?
A GAP insurance policy can be a useful product for some drivers, particularly those with brand new cars or cars on finance. However, it may not be necessary for those with older cars as any benefits would be minimal.