What is GAP insurance?
- Guaranteed Asset Protection (GAP) insurance
- Covers depreciation to protect you against a total loss
- Four key types of GAP insurance to consider
- Available from as little as £57
On average, a car will lose 50% of its original value in its first three years and will continue to depreciate over time. If your car is written off or stolen, your car insurer will only give you a settlement for the vehicle's market value - its depreciated value - leaving you out of pocket.
Guaranteed Asset Protection (GAP) insurance protects you from the risk of financial loss by paying you the difference between your car insurer's settlement and the original cost of your car. GAP insurance is available for new and used cars, at any value and starts from just £57.
Do I need GAP insurance?
GAP insurance can be mandatory on some finance deals for new cars, where you're most likely to suffer a loss, and still be liable for finance payments - even if your car is stolen or written off. Make sure you check the small print or ask your car sales representative if this is a requirement.
Most of the time, it's optional and down to you. If you decide to take out GAP insurance, it's recommended that the policy term duration should match the same term length of your finance deal. If you don't have finance or intend to keep the car longer than the finance term, you should base your policy length on how long you intend to keep the car for, as GAP insurance can't be renewed.
If you're buying a car from a dealer, many dealers will offer you GAP insurance but they must give you a four day deferral period before you commit, so that you're not pressured into a deal. You can go ahead and take out a policy from a dealer but you may want to get quotes from other providers too.
How much does GAP insurance cost?
GAP insurance can start from as little as £57 for a one-year policy. The average policy cost for PistonHeads members on policies taken out through our GAP partner ALA (using discount code PH10), is £148 for three years cover on a Volkswagen Golf.
Which GAP insurance do I need?
There are four key types of policy that you need to consider, depending on how you buy your car and the level of protection you want:
1. I paid for my vehicle outright using cash or a personal loan from a VAT registered dealer
This would pay the difference between your car insurer's settlement and the original vehicle invoice price.
This would pay the difference between your car insurer's settlement and the cost of replacing your vehicle new for old or with a car of a similar age.
2. My vehicle is on finance e.g. Personal Contact Purchase (PCP) or Hire Purchase (HP)
This would pay the difference between your car insurer's settlement and the original vehicle invoice price or the outstanding finance balance, whichever is higher at the time of the incident.
This would pay the difference between your car insurer's settlement and the cost of replacing your vehicle new for old or with one of a similar age as the original or the outstanding finance balance, whichever is higher at the time of the incident.
3. My vehicle is leased with no option to purchase at the end of the term e.g. Personal Contract Hire (PCH), Operating Lease
This would cover up 100% of the outstanding rental on a lease or contract hire vehicle as well as any difference in residual value.
4. My car was purchased privately, not from a dealer
This would pay the difference between your motor insurer's settlement and the Glass's Guide Retail Value of your car at the time the policy is purchased.
When can you buy GAP insurance?
GAP insurance can only be bought for cars which are less than 10 years old. You have a limited time after taking delivery of your car to buy cover - usually a maximum of 180 days. This might be longer if you have bought a new car and have new for old cover with your insurer for a full 12 months.
The exception to this is Agreed Value GAP which can be purchased at any time, so long as the car is still less than 10 years old with fewer than 100,000 miles on the clock.
Is GAP insurance worth it?
You should always check your car insurance policy before buying GAP insurance. Some insurers will replace a written-off car with a new one within the first 12 months, but only if you own the car and there could still be loopholes so that your insurer only pays you market value. This does not apply to leased cars, where typically the contract will be terminated and you could be left out of pocket.
Whether your car is on finance, lease or you own it outright, GAP insurance can help provide peace of mind and will ensure you're not out of pocket if the worst happens. Your car would need to be written off as a total loss in order to claim.
If you're still unsure and would like further advice, just ask the community any questions you have here.
Get a GAP insurance quote with ALA Insurance
If you'd like to get a quote for your car, contact our GAP insurance partner, ALA Insurance, and quote PH10 to receive 10% off.
We'd like to thank the following members for their contribution to the forums and creating the content for this article: rovermorris999, ashleyman, Ozzie Osmond, silentbrown, Sheepshanks, RammyMP, ALA Insurance
