GAP Insurance: Is it worth it?

GAP insurance is often offered when you buy a new car, and its presence on your purchasing documents can be a little confusing.

It’s also something that dealers like to push hard, because they can make a lot of money selling it. This can be a bit off-putting – how do you know the dealer has your best interests at heart, rather than the bottom line?

carwow has decided to put together an easy to read (we hope!) guide to GAP insurance, which should explain everything you need to know, and list the benefits and pitfalls. Is it worth spending your money on, and will it help you? Read on to find out.

What is GAP Insurance?

MINI Countryman

GAP stands for Guaranteed Asset Protection. It’s only claimed upon if your car is written-off (when a car is scrapped because repair costs would outweigh its value), or stolen and not recovered.

There are four common types of GAP insurance. Handily, the name of each gives a good idea of what is offered by each type:

1. Finance GAP Insurance

This pays the difference between how much the insurance pays out for the car that was written-off (the settlement amount), and how much outstanding finance remains to be paid on that car.

2. Return to Invoice (RTI) GAP Insurance

This covers the difference between how much the insurance pays out for the car that was written-off (the settlement amount), and how much you originally paid for the car.

For example, if you bought a car for 10,000 and after the car was written-off the insurance company paid 4,000 for the car, then the GAP Insurance would cover the difference, so would pay out 6,000.

N.B: This is only available for cars which are less than 7 years old. The policy must be taken out within 3 months of buying the car. This policy type is also known as Back to Invoice insurance.

Peugeot 208

3. Return to Value (RTV) GAP Insurance

This pays the difference between how much the insurance shells out for the car that was written-off (the settlement amount), and how much the car was worth when the policy was taken out.

E.g. If you took out the GAP policy when your car was worth 8,000 and after the car was written-off the insurance company paid 6,000 for the car, then the GAP Insurance would cover the difference, paying out 2,000.

N.B: This is also only available for cars which are less than 7 years old.

4. Replacement GAP Insurance

This pays the difference between how much the insurance pays out for the car that was written-off (the settlement amount), and how much it would cost to replace that car with an identical model to the one you bought.

For example – You’ve bought a car for 10,000 which was then written-off and the insurance company paid 6,000 for the car. Now, buying an identical car might cost you 11,000 (an increase). The GAP insurance would cover the difference, paying out 5,000 – the car’s new 11,000 value, minus 6,000.

N.B. This is only available for new and ex-demo cars which are less than 3 months old. This policy type is also known as VRI (Vehicle Replacement Insurance).

What are the disadvantages of GAP Insurance?

Volkswagen Golf

Its pretty unlikely that your car would be written-off or stolen without ever being returned. Remember that GAP is only of any use if the car is a total loss, which statistically speaking is fairly unlikely to happen.

Read the policy small print very carefully. Some policies wont pay out if your car is stolen by the thief getting hold of your keys (e.g. by breaking into your car), for example.

Other policies may not include the price of options when working out how much your car would cost to replace. If you’ve bought a 30,000 Mercedes-Benzor an Audi and ticked ten grand’s worth of options boxes (not unusual, these days), you might not get that ten grand back through GAP Insurance.

Sensible advice: If youre ever unsure of what is included in a policy then just ask – the person selling the policy should explain everything clearly to you. If you’re really unsure, seek professional financial advice.

What are the advantages of GAP Insurance?

Vauxhall Astra estate

If you have taken out finance to pay for your new car, then even in the event of a total write-off, GAP insurance can save a huge amount of money. Without it, you could be left paying a lot over the length of the contract, for a car you no longer own. That’s in addition to paying for whatever car you had to replace it with…

If you look at the cost of GAP insurance as a per-month cost, then it normally isnt a huge amount. It may be worth it for peace of mind!

How to save money on GAP Insurance

Volvo V60 Polestar

Its unusual that a car dealer will give you the best quote for GAP insurance. Our advice is to look around on the internet and get a range of quotes. It doesnt take long to fill in your details and it could save you a couple of hundred of pounds. Though as ever, make sure you carefully read the small print before agreeing to any deal.

Make sure that you take out the cover soon after buying your car. Some companies only allow policies to be taken out within 3 months of buying the car.

One company that enjoys great reviews and plenty of praise on forums such as MoneySavingExpert, is click4gap. Lots of forum members have reported low prices quotes from them and good service, plus they are FSA regulated.

Make sure that whoever you use is authorised by the FSA (Financial Services Authority), as you should be covered by the Financial Services Compensation Scheme.

And that ends our hefty guide to GAP insurance! If you have any questions of comments then please do leave them in the comments section below.

If you have a specific question then get in touch by using the contact us form at the bottom of the page-we always make an effort to reply!

(Main image credit: Flickr user Pawel Loj, used under Creative Commons license. Other images courtesy of their respective manufacturers)

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