GAP Insurance: Is it worth it?

Charlie Fraser / April 18, 2011

GAP Insurance is often sold alongside cars and can be confusing. Is it worth paying for, and what are the advantages and disadvantages of GAP Insurance?

It’s very easy to get confused by all the terms thrown around when it comes to buying a car. GAP insurance is something that dealers like to push hard, because they can make a lot of money by selling it.

Here’s an easy to read (we hope!) guide to GAP insurance, which should explain everything you need to know, and list the benefits and pitfalls.

GAP Insurance Guide


What is GAP Insurance?

 

GAP (Guaranteed Asset Protection) insurance is only claimed upon if your car is written-off (if it has to be scrapped because repairs would cost too much) or stolen and not recovered.

There are 4 common types of GAP insurance, luckily the name of each gives a good idea of what is offered by each type:


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.
 

Return to Invoice (RTI) 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 you originally paid for the car.

E.g. 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.


Return to Value (RTV) 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 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, so would pay out £2,000.

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


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.

E.g. If you bought a car for £10,000 which was written-off and the insurance company paid £6,000 for the car, if to buy the same car again today would now cost £11,000 (an increase), then the GAP insurance would cover the difference, so pay £5,000. (£11,000 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?

 

It’s 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 it’s fairly unlikely to happen.

Read the policy small print very carefully. For example some policies won’t pay out if your car is stolen by the thief getting hold of your keys (e.g. by breaking into your car).

Some policies may not include the price of the options when working out how much your car would cost to replace. If you’re ever unsure of what is included in a policy then just ask, they should explain everything clearly to you.


 

 

What are the advantages of GAP Insurance?

 

If you have taken out finance to pay for the 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 have.

If you look at the cost of GAP insurance as a per month cost, then it normally isn’t a huge amount. It may be worth it for peace of mind!


 

 

How to save money on GAP Insurance

 

It’s unusual that a car dealer would give you the best quote for GAP insurance. Our advice is to look around on the internet and get a range of quotes. It doesn’t 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 has got good reviews and a lot 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.

For GAP insurance, take a look at: click4gap.co.uk

Make sure that whoever you use is authorised by the FSA (Financial Services Authorithty), as you should be covered by the Financial Services Compensation Scheme - http://www.fscs.org.uk/


That ends the big guide to GAP insurance! If you have any questions of comments then please do leave them below. Or if you have a specific question then get in touch by using the contact us form at the bottom of the page, we always reply!

 

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