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Do I Need GAP Insurance?

So, you're looking to find out more about GAP insurance? Well come on in! We've got a complete guide here on everything you need to know about GAP insurance, so grab a cuppa, and continue reading to find out everything you need to know. 

What is GAP insurance?

GAP insurance stands for 'Guaranteed Asset Protection' insurance, and essentially it covers the difference in value (or the gap 😉) between what your car insurance thinks your car is worth, and the value of the car as shown in the policy. It's bought as an additional, optional extra, and sits alongside your standard car insurance.

Let's rewind a little. You've just bought a new or nearly-new car. You're settling into to your new life with your new car smell, and suddenly the worst happens. You're involved in a collision and the car is written off, or the car is stolen! Sometimes, cars lose value faster than you expect, and so you could be in for a shock when your car insurance won't pay out the full amount you're expecting for your car. This can be especially stressful if you've got finance on the car, and the insurance amount doesn't cover the remaining balance on your car finance. With GAP insurance (depending on which type you decide to take), you'll never be out of pocket. You can either choose an option that tops up to the entire purchase price of the car, or opt for a plan that tops you up so you can repay your finance agreement in full. 

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The history of GAP insurance

GAP insurance originates from North America, and even up until very recently in 2015 has seen some changes in the way it can be sold. The FCA updated its rules after identifying that GAP insurance providers were making approximately £100 in premiums for every £10 that was paid out in claims. Now, dealers have to provide you with information upfront so you have time to consider your options and shop around, and also they have to give you at least 4 days to consider it, which means that it cannot be both introduced to you and sold on the same day. 

The different types of GAP insurance

There are a few main types of GAP insurance that you may have heard of, and this guide should help you to understand what you're being offered a bit better. However, please always remember to read the details of the specific agreement you're being offered in full, and ask any questions to the provider if you are unsure.

Return to Invoice (RTI)

This one is the most simple to understand. It covers you for up to the exact original purchase price of the car. For example, you paid £20,000 for the car, just 2 years ago. Your car insurance pays out £12,000 after your collision, and your GAP insurance would pay the remaining £8,000. In this situation, you'd be able to go and purchase a car for £20,000 again. These policies are usually available if your car was bought from a dealership in the last 6 months. 

Agreed Value Cover (AVC)

Most independent insurers will offer AVC for cars bought privately or from a dealer (more than 6 months ago). This one covers the difference between the insurance payout, and the value of the car when you took out the AVC policy. For example, the car was worth £18,000 when you decided to take out the policy, but is written off a few months later and your insurance only pays out £12,000. The AVC will provide you with £6,000 to cover the difference.

Contract Hire GAP (CHG)

This is aimed at new cars on a lease, where you don't own the car. The cover will pay out any outstanding rental payments on the contract term, any termination fees for the contract, as well as the difference between your car insurance payout and the current market value. 

Vehicle Replacement (VR)

This one is quite straightforward. It pays out the gap in value between the insurance payout, and the actual cost to replace your car like-for-like. For example, if you bought a 2016 Fiat 500, you could get compensated enough to replace it with another 2016 Fiat 500.

Finance GAP Insurance

This one is aimed at people who are buying their car on finance, and to cover the situation where your car insurance does not pay out enough to cover the total outstanding value of your car finance. Whether it's HP or PCP car finance, this could be the relevant GAP for you. For example, you paid £20,000 for your car, £5,000 cash and £15,000 on finance. After a collision, your car insurance offers to pay you £10,000 for the car, but you still owe £12,000 on finance. Finance GAP Insurance will cover the £2,000 difference, so you can pay off your finance in full. Remember with this option, you'll be left with no car and no cash, even with the best finance product around. 

As you can imagine, you'll get the biggest payout with the Vehicle Replacement option, however the premium is likely to be the most costly. 

GAP insurance exclusions

Reading the paragraphs above, it sounds like a pretty good deal right? But we're here to give you the full picture so you can make up your own mind. It may not include all the cover you'd expect, so here are some things to look out for, that are likely not covered:

  • Custom extras you've had fitted to your car
  • Warranty charges, insurance premiums or road tax paid
  • Deductions from your insurance company such as unpaid premiums
  • High voluntary insurance excess payments above £250
Your GAP insurance also may not pay out if:
  • You do not have comprehensive car insurance
  • It not a total write-off, just damage to the car
  • Your insurance claim has not yet been settled
  • You were caught drink/drug driving
  • Someone else was driving your vehicle at the time of the collision
  • You underestimated the value of your vehicle at the start of your GAP insurance plan
  • You pay over a certain amount for your car insurance each year (check the small print on this one!)


Do I need GAP insurance?

This question really depends on your situation. Technically it is an optional extra, and not a requirement in order to purchase a car. However, having learnt more about GAP insurance, you may decide that it's beneficial for your situation. For example, if you car is crucial in order for you to be able to work, then you may decide it's too risky to ignore GAP insurance. You wouldn't want to be stuck without a car and without work! Equally, if you car is a luxury, and you can easily afford to replace it, or could easily live and work without it, then you may decide against any other payments such as GAP. For any insurance policy or purchase, we'd always recommend looking at it in detail, to make sure you are happy with the terms - as they can drastically differ from one policy to the next!

Who benefits most from GAP insurance?

We find there are certain circumstances where GAP insurance is really beneficial. 

  1. If you want a brand new car
  2. You've got finance on a car
  3. You're worried about the depreciation
  4. Your car is on a long term lease

If one of the above applies to you, then you may well decide to get GAP insurance. In these circumstances, the risk level is high if your car is stolen, or written off, and you may be put in a tricky financial position where you lose out on a lot of money, for something that is essentially not your fault! In these situations, you'll most probably wish you had paid that little bit extra to cover your back. However, some dealers offer an instant replacement for cars under 12 months old, so look out for that as you may not need it in the first year anyway - you can always get it later!

Where can I buy GAP insurance?

Many providers offer GAP insurance, including dealerships and online brokers, however waiting until the last minute may mean you miss out on the best possible deal, as some dealerships hike up the price so they make a good margin. You could potentially save hundreds of pounds by shopping around a bit. Many online providers will give you a quick quote, and that gives you information in order to compare. 

How much is GAP insurance?

So if your answer to 'do I need GAP insurance?' is a resounding YES, then you'll be interested to know how much you can expect to pay for it. Our research shows that premiums are generally around £100 to £300, which covers you for 3 years. Some providers will offer longer terms, and the price will of course depend on the type of car you're buying, it's value and how long you need the cover for. You'll find that it's more expensive if you buy it at a dealership, with some research from Which? suggesting that it could be up to £367 more expensive if bought from the dealer, rather than an independent insurer! The premium is usually paid upfront, so you can pay the one-off fee and not worry about any ongoing payments. 

So, did we answer everything you need to know about GAP insurance? If the answer is yes, and you think we could help others too, give it a share and spread the Carmoola love 🥰

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