Gap insurance

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Gap insurance

What is gap insurance?

GAP stands for Guaranteed Asset Protection. These policies are designed to close the ‘gap’ between what you paid for your car, and the amount your insurer pays out if you claimed.

If your car is written off or stolen, your insurer only pays out its market value at the time of the accident. This means you're likely to get a lot less than what you initially paid for the car. People usually buy this type of policy for brand-new cars because of how fast they depreciate.

Gap insurance ensures you don't end up losing money. The amount of cover you get depends on the level you choose when buying a policy.

But it’s an additional cost on top of your existing car insurance policy. So it's important to understand how it works, so you can decide whether it’s worth the extra cost.

What types of gap insurance are there?

There are three types of policies to choose from when you get a quote:

Vehicle replacement insurance (VRI) is suitable for second-hand cars. It covers the difference between the insurance pay-out and the cost of replacing your car to the same specification as when it was bought.

Return to invoice (RTI) is suitable for cars that were bought brand new. It pays the difference between the insurance pay-out and the original value of the car. If your car is declared a total loss, you're covered by gap insurance, including any outstanding finance.

Finance, lease & contract hire protects you if your vehicle's declared a total loss. It's suitable for HP, PCP, lease and contract hire vehicles. This type of gap insurance will pay the difference between the outstanding finance balance and the motor insurer's settlement.

How does gap insurance work?

For example, if you bought a car for £20,000, by year 3 it’s likely to be worth about £10,000 at market value. This is based on approximately 20% annual depreciation.

If your car is declared a total loss, your insurer would only pay out the market value of £10,000. It’s unlikely that this’ll be enough to buy a new, equivalent model. So you’d have to pay the £10,000 difference or settle for an less expensive car.

Having gap insurance in place means you get £20,000 in the event of a claim - £10,000 from your insurer and £10,000 from gap insurance. You’d be able to get a new replacement without having to pay yourself*.

*Return to invoice or vehicle replacement policies only.

Do I need gap insurance?

It depends on your circumstances. You can buy gap insurance for new or second-hand cars up to 10 years old. It's a common misconception that it's only used for financed cars.

You should consider gap insurance if:

Your car is on finance - your payout may not be enough to clear the debt. This could leave you paying for a car you no longer have.
You want a newer car if yours is written off or stolen. Gap insurance covers the difference between what you originally paid for the car, and the current market value.
You'd like to guarantee you get the same amount that you originally paid in the event of a total loss.

You may not need gap insurance if:

You're happy to replace your car with a similar make and model rather than a brand-new car, if it's written off or stolen.
You have a used car and can afford to replace it with the market value paid by the insurer and your own funds if needed.
You have a comprehensive policy with ‘new for old’ included on your policy, and your car is less than 12 months old. Your insurer should offer ‘new car replacement’ in this case, which means you don't need gap insurance.
You have third party or third-party, fire and theft insurance. Gap insurance only works with fully comprehensive cover.

What doesn't gap insurance cover?

Most policies don't cover:

Cars with a purchase price of over £75,000 (unless they have an approved tracking device)
Vehicles over 10 years old
Any vehicle not shown in Glass's Guide
Vehicles that have driven more than 100,000 miles when you go to buy the policy
Any person driving who is not covered as a named driver on your comprehensive insurance

Taxis, private hire vehicles, cars and vans used for any other type of ‘hire and reward'
Vehicles used for racing, rallying or any other competitive event
Theft committed by anyone you've given your car keys to
Drivers under 18 years old
Drivers without a full UK or EU driving licence

For more detailed and further exclusions, always check the policy documents.