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What is GAP insurance and why do you need it?

November 11, 2021 by

Buying a new car is an exciting moment. While you’re sitting in the showroom signing the paperwork, you’ll like be offered GAP insurance. But what is GAP insurance and do you need it?

GAP (guaranteed asset protection) insurance is designed to work in conjunction with your regular car insurance to ensure you’re not left out of pocket if your car is stolen or written off.

Essentially, it makes up the gap between what your insurance company will pay you for the car and what it’s actually worth. Read on for all you need to know about GAP insurance.

How does GAP insurance work?

Let’s say you buy a new car for £20,000, and a year later it gets stolen. Rather than what you paid for it, the insurance company will pay out its current market worth — which will likely be less than you paid for it.

This is where GAP insurance comes in. For example, if your insurance company pays out £15,000 for your car. A GAP insurance policy can pay out the additional £5,000 to make it up to the £20,000 you paid.

It’s important to note that your insurance company should pay out enough for a replacement car of the same age as yours. GAP insurance is a good option if you have outstanding finance on your car and the insurance payout won’t be enough to settle the agreement, or if you’d want to replace your car with a brand new one.

What does GAP insurance cover?

The level of coverage you get from GAP insurance will depend on what sort of policy you get.

Back to invoice GAP insurance

This level of cover will bridge the gap between what the insurance company has paid you for the car and what you paid for it originally. So say for example you paid £20,000 and the insurance company gives you £15,000, the GAP insurance will pay out £5,000.

Vehicle replacement GAP insurance

If you’d want to replace your car with a brand new one in the event of it being written off, then you’ll want vehicle replacement GAP insurance. This will pay out enough for you to replace your car with a brand new one of the same model, regardless of whether this is more or less than you paid originally.

Return to value GAP insurance

This is more relevant to second-hand cars. Return to value coverage will give you the difference between what your insurance company pays out and what the car was worth when you bought it, rather than what you actually paid for it.

Finance GAP insurance

This is the most basic level of cover. Finance GAP insurance will pay off any outstanding finance on your car if you owe more than the insurance company will pay out. However, if you owe more on finance than the car is worth then this level of cover won’t pay that negative equity.

Negative Equity GAP insurance

If you’ve traded an old car in with outstanding finance and transferred that debt to your new agreement, you may owe more than your car is worth. This is known as negative equity and finance GAP insurance won’t pay out for it. This is what negative equity GAP insurance is for as it will pay out to cover all of the debt you owe on the car.

Lease GAP insurance

If you’re leasing your car and it’s stolen or written off, lease GAP insurance is there to help you pay off your remaining instalments, as well as any fees you may incur for ending the agreement early.

What isn’t covered by GAP insurance?

As with all insurance policies, there are a few stipulations to GAP insurance.

  • If you’ve modified your car, the GAP insurance won’t cover the cost of these upgrades.
  • GAP insurance won’t cover you if you have third party insurance, so you’ll need fully comprehensive cover.
  • You can only claim if your insurance company deems your car a complete write-off.
  • If your insurer deducts money from your payout for things like a missed payment, this won’t be covered by the GAP insurance.

Should you get GAP insurance?

If you’ve used a large loan to buy your car, then you may want to consider GAP insurance. If your car is written off or stolen, you don’t want to be left owing money for a car you no longer have. GAP insurance can lessen this risk when you buy your car.

If your car is on long term lease, you can be left with a lot of outstanding debt in the event your car is written off. In this case, GAP insurance can help pay that bill.

GAP insurance can also bring peace of mind to anyone who’s concerned by depreciation. If you have a model that depreciates quickly, this can become an issue if the car is written off as the payout will be a lot less than you paid for it.

Where can you buy GAP insurance?

Most people buy GAP insurance from the dealer when they buy their car. The salesperson will usually offer the cover and explain what it is, how much it will cost and what level of cover you’ll get. GAP insurance is not a legal requirement, so you are in no way obliged to buy it when the dealer offers it to you.

Dealer are also not allowed to sell you the GAP insurance on the same day you buy your car, because there has to be a two day cooling-off period by law. This gives you time to think about it and see if you can get it cheaper elsewhere.

You may be able to find a cheaper deal on GAP insurance by looking on price comparison sites or through independent brokers after you’ve bought your car.

How much is GAP insurance?

GAP insurance is usually paid on one lump sum at the start of the policy and can vary from £50 to £150 per year depending on a multitude of factors.

When shopping for GAP insurance, make sure to check the excess. This is the amount you pay out before the policy gives you any money. The higher the excess, the less the policy should cost you, but it will also pay out less in the event of a claim.

The length of the policy can also have an effect on the price. Most GAP insurance policies are three years long but it’s worth checking with your provider.

FAQs

Can I get GAP insurance on a used car?

Yes, you can, but it’s less valuable when buying second hand. This is because cars take the biggest hit in depreciation when they’re new so you stand to lose more money if your car is written off than you would with a used car.

Can I get GAP insurance after I’ve bought a car?

This depends on the provider you choose, but in most cases, you won’t be able to buy GAP insurance on a car that is over three years old.

How do I claim on GAP insurance?

Once your insurance provider has offered you a settlement for your car, you can then contact your GAP insurance to get the ball rolling.

Check your GAP insurance terms and conditions first to see what paperwork you’ll need and what your excess is.

It’s also best to speak to your GAP insurance provider before accepting a settlement from your insurance company.

I’ve decided I no longer want GAP insurance, can I cancel my policy early?

Yes, you can. If you decide to cancel in the first 30 days, you should be entitled to a full refund minus any cancellation fees. Beyond that, you will be refunded a proportion of the original policy depending on how long it’s been running.