GAP stands for Guaranteed Asset Protection. It’s designed to cover the difference in price between what you paid for your car and what your car insurance is paying out for a write-off, theft, or other total loss claim.
Insurers typically will pay the current market value of a car, according to the RAC, but this often leaves motorists out of pocket by as much as 35% in the first year and up to 50% or more over three years.
This is where GAP insurance comes in.
It covers the difference (or gap) between the amount your insurance provider pays out and the amount you’d need to pay to buy a new or equivalent model.
Policies typically cost between £100-£300 for three years, MoneySavingExpert says.
Here’s a simplified example from the RAC on how it may work…
You buy your new car for £30,000, but within the first year, you have an accident, and the car is written off.
Your insurance provider pays out £20,000 based on the current market value for a total loss payment.
But if you have GAP insurance, you can expect to receive the full £30,000.
It’s worth keeping in mind that this reflects an example of one type of GAP insurance, and other deals will reimburse drivers differently.
Pic: iStock
Is it for you?
GAP insurance might be for you if:
- You want a brand-new replacement car;
- Or you owe money to a car finance company, as it will help you pay off the whole loan;
- Your car is an expensive model that depreciates very quickly;
- Your car is hired on a long-term lease.
Who might want to think twice?
- Your car is new – say, less than a year old – and you have new car replacement cover as part of your insurance policy;
- You’re fine with a like-for-like replacement rather than a brand new vehicle.
Read more:
The ‘sweet spot’ to look out for when buying a used car
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When GAP can’t bridge the gap
Keep in mind, there may be some exclusions to GAP insurance.
For the payment to kick in, your car will need to be judged a total loss by your insurance company.
But some cars may not be covered under certain conditions, including but not limited to: if they’re on a third-party policy, if the car is worth more than a certain amount, if it has done more than 100,000 miles when the policy was purchased and if it is used for hire and taxi services.
GAP insurance will not cover any modifications to your car, such as bigger and louder exhausts, sporty spoilers and alloy wheels.
What types of GAP insurance are there (according to the RAC):
- Return to invoice GAP insurance: This tops up a total loss payment to the amount you bought a vehicle for.
- Return to value GAP insurance: This pays the difference between a standard total loss payment and the value of the car when it was first purchased.
- Vehicle replacement GAP insurance: This pays the difference between a standard total loss payment and the value of a new car.
- Finance GAP insurance: This covers the outstanding loan payments on a car, but typically won’t include negative equity.
- Negative equity GAP insurance: This covers the extra costs on a finance deal that occur when you borrow more money than the cost of your car.
- Lease GAP insurance: This pays the rest of your contract on a lease deal and any extra fees for ending your agreement early.
