What is GAP insurance?

An image of a car showing the car insurance payout and the GAP insurance payout

GAP insurance is usually encouraged as an optional extra when you are buying or leasing a car, but do you really need it? Or is it a complete waste of time and money?

In this guide, Bobatoo takes a detailed look at what GAP cover is, whether or not you need it, how much it costs and where you can get it from. Commonly asked questions relating to the topic will also be answered below!

What is gap insurance? - What does gap insurance cover?

Whenever you buy a car, its value will almost definitely decrease (sometimes dramatically) over the course of the first few years of having it.

GAP insurance – formally known as Guaranteed Asset Protection– covers you against this depreciation in the event of your car getting written off or stolen.

If you make a successful claim on your car insurance policy, the provider will only pay out on the current estimated value of your car. GAP insurance will refund you the difference between that fee and the initial fee you paid for your vehicle.

For example, if you paid £10,000 for a vehicle which is only valued at £6,000 at the time of your claim, a GAP insurance policy will allow you to reclaim the £4,000 difference.

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Do I need GAP insurance? – Is it worth it?

Car salespeople are often insistent that you take out standard car insurance, but do you really need it?

You should consider taking out GAP insurance if:

Your car is on finance

If you bought your car on finance (PCP, Hire Purchase etc.), GAP insurance could prevent you from having to continue making repayments on a car which has been stolen or written off.

While your car insurance will pay you the current estimated value of the vehicle, you could use the extra payout from your gap insurance to ensure that you’re not left out of pocket.

You have a brand new car

The depreciation on new vehicles is far higher than that on second-hand ones – in fact, new cars typically lose around 40% of their value within the first 12 months according to the AA.

So, if you purchase a new vehicle for £25,000, you could potentially lose a whopping £10,000 in depreciation within the first year of owning it. GAP insurance on a new vehicle could potentially save you thousands of pounds in the event of an accident or theft.

If the following applies to you, you might not need GAP insurance:

Your car insurance offers ‘new car replacement’

When insuring a new car, many insurers will offer you another brand new car for up to 24 months if you make a claim on their fully comprehensive cover policy.

Check if this is included in your specific insurance policy. If it is, you probably won’t need GAP insurance.

You have an older car

The rate of depreciation decreases slowly over time, meaning that GAP insurance becomes less and less effective.

If you own a car that is a few years old, you may find that GAP insurance has no use for you.

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What are the different types of GAP insurance policies?

There are 4 types of GAP cover, each of which provides cover in different ways:

  • Vehicle replacement GAP insurance – covers the difference between your car insurance payout and the cost of your car if bought new.
  • Return to invoice GAP insurance – covers the difference between your car insurance payout and the amount you initially paid for your car.
  • Return to value GAP insurance – covers the difference between your car insurance payout and the market value of your car when it was purchased (handy if you got a discount when buying!)
  • Finance GAP insurance – covers any additional money you owe to a finance company following a car insurance payout.

What to look for in GAP insurance

As with any other type of insurance, the level of cover offered by your gap insurance provider will depend on the policy you take out.

When looking for a GAP insurance quote, check that you’ll receive an adequate level of the following:

  • Maximum cover – the maximum payout that you’ll receive from your GAP insurance
  • Length of cover – the length of time that your policy will last for
  • Length of ownership – some insurers will only pay out if you’ve owned the car for a particular length of time - for example, 2 months.

Are there any exclusions to a GAP insurance policy?

Yes – most providers will not offer GAP insurance on vehicles that are older than 7 years or with more than 80,000 miles on the clock.

You will not be able to claim on a GAP insurance policy if your car has not been categorised as a write-off or stolen vehicle, or if your general car insurance is not fully comprehensive.

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It is also worth asking your GAP insurance provider about any specific exclusions, which can sometimes be:

  • The cost of any extras that you have added to the vehicle, such as a sat-nav or a dash cam.
  • Accidents as a result of competitive driving, such as rally driving.

Where can I get GAP insurance?

You’ll be able to get GAP insurance from the dealer that you buy your car from, but it is almost always much more expensive.

Traditional car insurance companies like Admiral also offer GAP insurance, while there are also brokers and dealers that specialise in providing it online – just be sure to check out any reviews of particular companies that you’re thinking of getting a quote from and weigh up the pros and cons of each – don’t just go for the first offer!

How much does GAP insurance cost?

If you’re buying your policy through a car dealership, you could end up paying upwards of £350 for 3 years of the best GAP insurance.

By purchasing through an online dealer, you can get the same level of cover for around a third of the price, so unless you’re absolutely certain that you’re getting a good deal, tell your car dealer that you’ll be looking elsewhere!