GAP Insurance Compare quotes to find the best insurance policy for you
in the UK, GAP (Guaranteed Asset Protection) insurance covers the difference between what your car insurance pays out in a total loss scenario and the original cost of the vehicle, or the outstanding balance on a car loan, if higher. It’s designed to help you avoid a financial shortfall if your car is written off or stolen, especially if you’ve financed the purchase.
Here’s a more detailed explanation:
Purpose:
GAP insurance aims to bridge the financial gap between the insurance payout (which reflects the car’s current market value) and the amount you still owe on a loan or lease, or even the cost of replacing the car.
How it works:
If your car is written off, standard car insurance usually pays out the car’s current market value, which is likely to be less than the original purchase price or the remaining loan balance, especially for newer cars. GAP insurance then covers the difference, helping you avoid a financial loss or a difficult situation if you need to buy a replacement.
When it’s useful:
GAP insurance is most beneficial if you’ve bought a new car on finance, as new cars depreciate quickly in value. It can also be helpful if you’re leasing a car.
Not mandatory:
GAP insurance is optional, but it can provide a valuable safety net in the event of a total loss claim
GAP insurance cover in the UK: a comprehensive overview
Introduction
Guaranteed Asset Protection, or GAP insurance, is an optional financial product designed to safeguard vehicle owners from potential financial shortfalls in the event their vehicle is declared a total loss by their primary motor insurer. This can occur due to theft, fire, or being written off following an accident. The core purpose of GAP insurance is to bridge the “gap” between the vehicle’s market value at the time of the incident and the original purchase price or the outstanding balance of a finance agreement.
The Problem of Vehicle Depreciation
A key factor driving the need for GAP insurance is the rapid depreciation of vehicle values, especially new ones. From the moment a new car is driven off the forecourt, its value starts to decline significantly. A typical car can lose around 60% of its value within the first three years of ownership. This means that if a vehicle is stolen or written off, the comprehensive motor insurance payout, based on the vehicle’s market value, is likely to be considerably less than the original purchase price or the remaining finance balance.
How GAP insurance works
GAP insurance aims to mitigate this financial risk. When a vehicle is declared a total loss, the motor insurer assesses its market value and provides a payout based on that assessment. However, if a driver wants to replace the vehicle with a new equivalent or if they have an outstanding finance loan or lease agreement, the motor insurance payout may not be sufficient. This is where GAP insurance becomes relevant. It pays the difference between the motor insurance settlement and either the original purchase price or the outstanding finance balance, depending on the type of policy.
Types of GAP insurance policies in the UK
Different types of GAP insurance policies are available in the UK, each designed to meet specific needs:
Return to Invoice (RTI) GAP Insurance: Covers the difference between the motor insurer’s settlement and the original invoice price.
Vehicle Replacement GAP Insurance: Covers the difference between the motor insurer’s settlement and the cost of a new equivalent vehicle at the time of the claim.
Finance GAP Insurance: Covers the shortfall between the motor insurer’s payout and the remaining balance on a loan or lease.
Agreed Value GAP Insurance: Covers the gap between the motor insurer’s payout and a pre-agreed value of the vehicle.
Negative Equity GAP Insurance: Covers extra costs on a finance deal when borrowing exceeds the vehicle’s cost.
Lease GAP Insurance / Contract Hire GAP Insurance: Covers remaining rental payments and any shortfall in market value settlement for leased vehicles.
Who needs GAP insurance?
GAP insurance is not legally required and its necessity varies. It’s particularly useful for those with new or nearly new vehicles due to rapid depreciation, drivers with outstanding finance agreements to avoid debt on a lost vehicle, and those who want to replace their vehicle with a new equivalent. Owners of expensive vehicles may also benefit due to greater potential loss from depreciation.
Who may not need GAP insurance?
GAP insurance may not be necessary if the vehicle is older or has already significantly depreciated, if the vehicle was bought outright at a low price, if a driver is content with a like-for-like used replacement, or if the primary motor insurance includes “new for old” cover.
Eligibility criteria
To be eligible for GAP insurance, vehicles must be registered in the UK and have fully comprehensive motor insurance from a UK insurer. Policyholders must be the owner or registered keeper. Exclusions may apply to certain vehicle types and modifications. There may also be limits on vehicle age and mileage, and a timeframe for purchasing the policy after acquiring the vehicle.
Cost of GAP insurance
The cost of GAP insurance in the UK is influenced by factors like vehicle value, policy term, and provider. Policies often range from £100 to £300 for multi-year coverage. Comparing quotes from specialist providers is recommended as dealership prices can be higher.
Making a claim
If a vehicle with GAP coverage is declared a total loss, the claims process involves contacting the GAP provider before accepting the motor insurer’s settlement and within a specified timeframe. Necessary documents include policy number, vehicle details, cause of loss, and finance/lease figures. Payouts are typically received via bank transfer after the claim is approved.
Cooling-off period and cancellation
UK regulations mandate a minimum 14-day cooling-off period for a full refund if cancelled. After this period, policies can usually be cancelled for a pro-rata refund, though fees may apply.
Conclusion
GAP insurance offers valuable financial protection in the UK, particularly for owners of new or financed vehicles. By covering the difference between motor insurance payouts and original purchase prices or outstanding finance, it helps mitigate financial losses due to depreciation. Understanding policy types, eligibility, and individual circumstances is crucial in deciding if GAP insurance is suitable.
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