What is GAP insurance?

Car GAP insurance stands for Guaranteed Asset Protection insurance. It’s a type of car insurance that protects you financially in the event of the total loss of your vehicle, whether it’s stolen or declared written off. GAP insurance for cars is bought on top of your regular comprehensive car insurance policy.

Most regular car insurance policies pay out the actual cash value (ACV) of a car in the event of its loss. This is the market value of your car at the time it's written off or stolen.

But cars can lose their value quickly. Sometimes the cash paid out by your insurance policy could be less than what you originally paid for the car, or the amount you still owe on your lease or car finance.

This is where GAP insurance bridges the financial ‘gap’. GAP insurance covers the difference between how much your car insurance policy pays out for your car in the event of its loss, and how much you originally paid for the car or how much you still owe on your lease or loan. It ensures you're not left with a financial burden if your car is declared a total loss.

Car GAP insurance is suitable for new and used cars, leased cars and cars bought with a loan where the market value of the car is a lot less than what you paid for it.

Explaining GAP car insurance

New cars lose value quickly. If your car is stolen or written off, the cash value your regular car insurance pays out may be considerably less than what you paid for it. You may not receive enough to replace your car with the same model, or you may be left making lease or loan payments on a car you no longer own.

For example, say you bought a car for £20,000, and it gets stolen. After it was stolen and not recovered, your insurance company valued it at £12,000, and paid out only £12,000. If you wanted to buy the same car again, you’d need to stump up another £8,000.

Or what if you leased a car? Say you leased a car for £30,000. After half a year of driving it, your car is written off. You’ve only paid £2,000 of the lease and your insurance will only reimburse you £22,000. You'd be responsible for paying the remaining £6,000 you owe out of your own pocket, even though you no longer have that car.

If you have a GAP insurance policy, any financial gap should be covered.

Is GAP insurance worth it?

Car GAP insurance isn’t for everyone. But you should consider it if:

1. You’ve bought a new car and it’s a model that loses value quickly.
2. The market value of your car is lower than the amount you owe on a lease or a loan, so you’d still have to pay that lease or loan after your comprehensive insurance pays out.
3. You’d want to replace your car if it’s stolen or written off with a brand new car.

Car GAP insurance won’t be suitable if:

1. You bought your car more than 12 months ago.
2. You have a second-hand car and an insurance payout likely won’t be much lower than what you paid for it.
3. You’re happy buying a replacement second-hand car that’s of a similar age and condition to the car you lost.

How does GAP Insurance work?

Buying and making a claim on a GAP car insurance policy works in much the same way as other motor insurance policies:

1. Buying your car GAP insurance policy: you typically purchase a GAP insurance policy from a broker in the first year of buying or leasing a car. You can buy GAP insurance online.
2. You’re covered by your GAP insurance: as long as you keep making your insurance payments, you’ll be covered for the length of your GAP insurance policy (usually between two and five years).
3. Making a GAP insurance claim: if your car is stolen or written off, you’ll first need to make an approved claim on your comprehensive car insurance. When you’re notified of the settlement value, contact your GAP insurance provider to make sure they’re happy with the amount offered.
4. Receiving a GAP insurance pay-out: once you’ve received your insurance settlement, make your GAP insurance claim within the allotted time period. You’ll then get your GAP insurance payout, or your lease may be paid off automatically by your GAP insurance provider.

What does car GAP Insurance cover?

GAP insurance for cars covers the difference between the money paid out by your regular car insurance and the amount you paid for your car or the amount left on your lease or loan. The details of specific GAP insurance policies will vary, but most typically cover at least one of the following:

• The original price you paid for your car when new.
• The cost of replacing your car with the same model and specifications.
• The cost of the remaining payments to be made on your lease.
• The cost of the remaining debt on a loan you took out to buy the car.

Some car GAP insurance policies may also cover:

• Any insurance deductibles you have to pay when making a claim on your regular car insurance.
• Optional extras or add-ons to lease agreements, like extended warranties or service contracts.

What isn't covered by GAP Insurance?

Car GAP insurance policies typically don’t cover:

• Non-comprehensive car insurance: GAP insurance will only cover you if you have a comprehensive car insurance policy that will pay out if your car is lost. Other types of car insurance, like third party insurance, won’t pay out for a loss so GAP insurance won’t be appropriate.

• Non-standard modifications: GAP insurance won't cover the cost of any non-standard modifications you make to your car, like spoilers, tinted windows or custom suspension.

• Repairable damage: GAP insurance covers you for the loss of a car only. If your car isn’t written off and can be repaired, your GAP insurance policy won’t cover those repairs.

• Non-vehicle-related expenses: GAP insurance covers you for the financial gap between your vehicle’s market value and how much you bought if for/owe on a lease or loan. GAP insurance won’t cover you for other costs related to its loss, such as property damage, medical costs or liability claims.

• Vehicles not included in Glass's Guide: Glass's Guide is a valuation service used by UK insurers to value vehicles. Some GAP insurance providers may not cover your vehicle if it isn’t listed in Glass’s Guide.

• Business cars: standard comprehensive car insurance, and GAP insurance, don’t cover business vehicles.

• Cars that can’t otherwise be insured: some cars won’t be insurable, usually because they’re too old or have very high mileages.

• Drivers who aren’t named: if your car is written off by someone not named on your policy, then you’re unlikely to be covered by your comprehensive insurance.

• Drivers without a valid licence: insurance claims for written-off cars made by someone without a UK driving licence won’t be approved.

• Drivers under the influence: your comprehensive insurance won't pay out for any claims if your car was written off by someone driving under the influence of alcohol or drugs.

Types of GAP Insurance

The general principle of GAP insurance is that you’ll be covered for the gap between a car insurance payout and the value of your car. But there are different types of GAP insurance that use different approaches to estimate the gap between a payout and your vehicle’s value.

These are the most common forms of car GAP insurance:

Return to Invoice

Return to invoice GAP insurance covers the difference between your comprehensive car insurance payout and the price you paid for your car.

Return to Value

Typically a policy bought for second hand cars, return to value GAP insurance covers the difference between your comprehensive car insurance payout and the value of your car when it was new.

Combined Return to Invoice

Combined return to invoice GAP insurance covers the difference between your comprehensive car insurance payout and the price you paid for your car or your outstanding lease amount, whichever is higher.

How much does UK GAP insurance cost?

The price paid for a GAP insurance policy will vary, and will depend on a range of factors, including:

• The age, make, model and market value of your car: the more expensive your car, the more it will cost to insure.
• The type of car GAP insurance you choose: different forms of payout will have different costs.
• The length of the GAP insurance policy: most GAP insurance policies last between two to five years. Longer policies are more expensive.
• The policy’s excess: this is the amount of money that you agree to contribute to a claim you make. A higher excess usually means cheaper insurance.