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GAP insurance advice

What is GAP insurance and should you have it?

If you've ever bought a car from a dealership, you will have heard of GAP insurance. But what is it and should you be buying it?

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If you’ve ever bought a car from a car dealership, you will have almost certainly heard about GAP insurance.

GAP insurance is offered by nearly every main car dealership in the country, yet it’s not well understood by car buyers. In most cases, the first time it rears its head is in the dealership when a salesperson is trying to add it to your new car order. 

How well do you actually understand what GAP insurance is and when you can actually benefit from it? Do you know what GAP stands for? Do you know what type of GAP insurance you have (there are many different variations) and exactly what you are covered for? 

We have produced this guide in conjunction with our commerical partner, ALA Insurance. It will explain how GAP works, the different types of cover available, and what to look for in a GAP policy.

Did you know? ALA Insurance offers a special 10% discount on GAP insurance for readers of The Car Expert

What is GAP insurance?

GAP stands for Guaranteed Asset Protection. GAP insurance is an additional insurance product for your vehicle, over and above your regular car insurance policy. It’s aimed at providing extra cover in the event of your car being declared a Total Loss (which means it has either been written off after an accident or stolen and not recovered).

GAP insurance is not a replacement for your car insurance. In fact, you must have a valid comprehensive car insurance in place to be able to make a claim on your GAP cover.

GAP insurance vs comprehensive car insurance

Your regular comprehensive car insurance will generally cover you for the market value of your car if it is stolen or written off. However, this will probably be a lot less than what you originally paid for the car, as it will start depreciating as soon as you drive away from the showroom. This is normal; your car insurance is designed to cover you for what your car is worth today, not what you paid for it originally.

If you bought a brand new car, it is quite possible that it could have lost half its value in little more than two years. So if you bought a car in 2019 for £30,000, and now in 2021 someone has crashed into you and the damage is so great that your insurance company has declared your car a write-off, you might be lucky to get a cheque for £15,000. 

Ouch.

In theory, car insurers expect this to be sufficient for you to go out and buy a similar two-year-old car. In reality, you’re probably feeling completely shafted. Especially if you have bought the vehicle on a PCP and still owe the finance company more than the value of your write-off cheque.

Two-year-old car GAP insurance cover
Your two-year-old car might be worth a lot less than you think

Types of GAP insurance

There are several different types of GAP insurance, but the most popular offerings for consumers are designed to cover you for one of two things:

  1. Return to Invoice: The difference (or the ‘gap’) between what your car insurance has paid you and what you originally paid for the car* (the Invoice Price**)
  2. Finance GAP: The difference between what your car insurance has paid you and what you owe the finance company to settle your finance agreement*

* Subject to a limit
** Invoice Price is the price of the car, not including registration, road tax or any other extras

Using the same example as before, your car is written off and your car insurer has given you £15,000. Depending on the type of GAP insurance you have, it would cover you for either an additional £15,000 (to bring you back to the invoice price) or the balance of your finance settlement if that was greater than the invoice price (which it usually is if you have a PCP or similar). There may be exclusions that you will not be covered for, or limitations on the policy. Check your documentation and ask questions before signing up.

There are specific GAP policies for leased vehicles, which effectively do the same thing as Finance GAP, in that your lease payments and fees are all cleared.

When does GAP insurance cover me?

Only in the event of a Total Loss, which means your car has been stolen and not recovered, or written off in an accident. 

Your insurance company pays you according to your policy (usually the market value of the vehicle according to a particular guide), and then your GAP insurance pays you over and above that amount.

When does GAP not cover me?

If your car is not a Total Loss, your GAP won’t pay out. If your insurer decides to repair your car rather than write it off, it is not a Total Loss.

If, for any reason, your car insurance refuses to pay out on a claim, your GAP insurance will also not pay out. This usually means you have voided your car insurance policy somehow – for example; you were drunk, your car was not taxed, you didn’t have a valid MOT, or any other reason. If your car insurance does not pay out, neither does your GAP insurance.

Should I take out GAP insurance?

Like any insurance policy, it is up to you to decide what level of risk you are comfortable with and how much you want to pay to reduce your financial exposure.

The chances of your car being written off or stolen in the next three years (most GAP policies are for three years) may be quite small in the greater scheme of things, but the potential cost if it does happen is very high.

If you feel that GAP insurance is right for you, DON’T simply accept the dealership’s offer. A car dealership is about the most expensive place on the planet to buy GAP, largely because most buyers haven’t got a clue what it would cost elsewhere because they’ve never looked.

A ten-minute search on Google will show you that you can almost always buy the same level of GAP cheaper from a dedicated GAP insurance provider. Here at The Car Expert, we are partnered with ALA Insurance, one of the largest providers of GAP insurance in the UK. Obviously, that’s who we recommend, but you should always shop around to find the best policy to suit your needs.

Special offer: ALA Insurance offers a special 10% discount on GAP insurance for readers of The Car Expert

What should I look for in a GAP insurance policy?

The obvious thing is the price. Online GAP providers are almost always much cheaper than a car dealer, so shop around.

The second thing is the cover; what are you getting for your money? Most GAP policies will have a payout limit, so make sure that the level of cover you are taking out is enough for your needs based on the price of your car.

Finally, always read the terms and conditions carefully to make sure the policy is suitable for you and your driving circumstances.

GAP insurance is usually cheaper online that at the car dealership
“Look darling, this GAP insurance is half the price of what that car salesman quoted us.”

Why is GAP insurance from car dealers so expensive?

Often the dealer’s price is more than double the price of an equivalent policy sold online. How do they get away with this? Because customers have often never heard of GAP insurance, or simply don’t take the time to shop around. 

By the time they get around to talking about GAP insurance, you’ve generally already bought the car and are now being manipulated into paying for numerous extras.

The Financial Conduct Authority (FCA) introduced new laws in 2015 to prevent dealers from selling you GAP insurance on the same day that you buy their car, but plenty of people still don’t take the mandated two-day waiting period to explore other providers.

If you are considering buying GAP insurance from the dealership, remember that – like everything they sell – the price is always negotiable. Don’t pay full price, as you could possibly save a couple of hundred quid. Get a quote online before you buy the car and see if they can match it. Chances are they won’t be able to.

Special offer: ALA Insurance offers a special 10% discount on GAP insurance for readers of The Car Expert

This article was originally published in March 2017 and was comprehensively updated in January 2021.

Stuart Masson
Stuart Massonhttps://www.thecarexpert.co.uk/
Stuart is the Editorial Director of our suite of sites: The Car Expert, The Van Expert and The Truck Expert. Originally from Australia, Stuart has had a passion for cars and the automotive industry for over thirty years. He spent a decade in automotive retail, and now works tirelessly to help car buyers by providing independent and impartial advice.