Last updated June 30, 2022
GAP (guaranteed asset protection) insurance is a term you may have heard when buying a new car. It is an insurance product that is designed to cover the difference between the amount that your regular car insurance will pay out in the event of a claim and the price you paid for the car. Our guide explains how GAP insurance works so you can make an informed decision about whether you need it.
GAP insurance is designed to protect you when you make an insurance claim by covering the difference between the insurer's valuation and the price you paid for the car.
For example, you may have paid £20,000 for a car or financed that amount to fund your purchase. If the car is then stolen or written-off shortly afterwards and your insurance company only values the car at £16,000, you have a shortfall of £4,000. If you have financed the car, this would leave you owing the car insurance company the difference or if you have paid cash it could leave you out of pocket.
Depending on the type of policy you took out, your GAP insurance should pay out the difference between what your insurer paid out and what you paid for the car or the amount of remaining finance.
When looking for GAP insurance, there are three main options to consider:
Return to invoice insurance will pay the difference between your insurance providers ‘total loss payment’ and the amount you paid for the car.
Return to value insurance is designed to pay the difference between the insurance providers valuation of your car and the value of the car when it was new.
Vehicle replacement cover will cover the difference between the insurance providers ‘total loss payment’ and how much it will cost to replace your car with a new car that is the exact same model, make and specification.
If you choose vehicle replacement cover, you won’t have to pay the difference for a like-for-like car if it is now more expensive than what you originally paid.
Deciding whether you need GAP insurance involves thinking about a few different possible eventualities and your own appetite for risk. It can be useful to have but it’s not a necessity for everybody.
Firstly, you may consider taking it out if you are using a loan or finance to purchase a car. In the event that the car is stolen or damaged beyond repair then you will be covered for the full amount of the loss and won’t risk having to continue making payments for a car you no longer own.
Another reason you may be considering taking out GAP insurance is if you’re worried about the rate of depreciation of your car. This is especially relevant if you’ve bought a new car, as it’s likely to depreciate considerably in value as soon as it’s driven. In this instance, your insurance is likely to pay much less than what you’ve paid in the event of a total loss. However, if you take out GAP insurance, they should cover the difference between the ‘total loss value’ and the insurance payout.
Thirdly, you may be considering GAP insurance if your car is financed through a long-term lease. If you lease your car, you are not the legal owner but you are likely to be liable for the full value of the car in the event of a total loss or if it’s stolen. To provide peace of mind, you may consider GAP insurance to cover the difference between the insurance payout and the valuation of the car from the finance company.
Despite what you may think, GAP insurance may not be required when buying a new car and your insurance company may replace your car as standard if it’s written-off or stolen within the first year of ownership. Therefore, it’s worth reading through your insurance policy or contacting them to see what would be covered.
There are many GAP insurance providers, and you don’t have to buy your cover from the same place you purchased your car. It is the law that car dealerships have to provide ‘prescribed information’ to buyers before selling any cover and help to make an informed decision.
The Financial Conduct Authority also states that a dealer can’t sell you cover the same day the transaction goes through and they must wait at least four days. Nevertheless, you are allowed to buy straight away if you wish to, but it is always worth considering all options beforehand.
If your car has been declared a write-off and your insurer has offered you a settlement figure, you will then be able to make a claim with the GAP insurance company. Before doing this, you should check your policy documents and call your GAP provider, due to some companies requiring you to speak to them before accepting the settlement. Where there is outstanding finance, it should be discussed with them that they’ll be paying the outstanding amount and if it’ll be done automatically.
All insurance policies have certain exclusions and GAP insurance is no different. The vast majority of GAP insurance policies won’t cover:
Only those with fully comprehensive car insurance are eligible for GAP insurance, so you won’t be covered if you have a third-party policy.
A GAP insurance policy will not cover the cost of car modifications or added extras – such as spoilers, alloys, etc. – if your car is stolen or a total write-off.
If your car insurance provider lowers your potential pay-out due to missed insurance payments, your GAP insurance policy will not cover this.
Unless your car is a total write-off or is stolen, as judged by the insurance company, then it is unlikely to be covered by a GAP insurance policy.
If your car is declared a total loss, Vehicle Replacement GAP Insurance will pay the difference between your insurance provider’s pay-out and the cost of a like-for-like replacement of your previous vehicle.
If your car is under a finance agreement, Vehicle Replacement GAP Cover will pay the difference between the vehicle’s value at the time it was written off and the remaining balance of your finance agreement.
Even if your current insurance policy offers full coverage, you could certainly still benefit from taking out GAP Insurance.
If any of the following applies to you, GAP Insurance would be a worthwhile investment:
You may also find that your insurance or finance provider requires GAP Insurance.