What is Gap insurance?
Gap insurance is a type of cover you can buy to protect you when you buy a new car. It is designed to cover the difference between the amount your car insurer would pay out if your car was stolen, or written off, and the price you paid for your motor.
Suppose you’ve just lavished £15,000 on a car, or have taken out finance to that amount. You drive the car home, and then a week later it’s stolen - or written off in an accident.
Your car insurer hands you a cheque for £10,000. You paid the dealer £15,000 - but by the insurer’s estimates, £10,000 is what the car is actually worth.
This leaves you £5,000 down - or even worse - potentially in debt to the tune of £5,000 (plus interest) to your finance company for a car you no longer own.
If you’ve owned the car longer, it can be even worse. When your insurer pays a settlement for a car that’s a total loss, they have to pay you the car’s current value - and cars are notorious for rapidly losing value over time. After a year or so, you could end up getting back half of what you actually paid for it.
Where your car is a total loss, ‘Gap’ insurance (short for Guaranteed Asset Protection), is designed to work alongside your standard car insurance - topping up the difference between what they will pay, and what you’ll actually need to get back on the road.
Our short video guide explains how it works.
Will Gap insurance replace my car?
While Gap insurance won’t directly replace your car - depending on the type of insurance you buy, it will ensure you have the amount you need to clear your finance debt, or purchase a replacement of the same make and model.
It can also help to bridge the difference between what your insurer has paid and what you paid to buy the car in the first place.
When is Gap insurance is needed?
We think Gap insurance can be useful and is therefore worth thinking about - but it won’t make sense for everyone.
Generally speaking, Gap is likely to be worthwhile in the following situations:
You used a large loan to buy your vehicle
Gap insurance can offer a means of paying off outstanding finance on your car, which means if your car’s stolen or damaged beyond repair you won’t have to continue to make payments on it.
You’re concerned about the depreciation of your vehicle
The quicker your car loses its value, the less your insurer will pay after a total loss incident, compared to what you paid for it. Gap insurance means you’ll get more back.
Your car is on a long-term lease
If you have a long-term rental agreement for a vehicle with a mileage allowance, a write-off could leave you without a car and a bill for thousands of pounds. Gap insurance can help protect against this.
You might not need Gap insurance if your car is brand new
Many car insurers will replace a brand new car if it’s written off in the first year. So if your car has just rolled off the production line, check with your car insurer before you look for a Gap provider to see if you would be covered - at least for the first 12 months.
Gap can often only be bought up to a year after you've purchased the car, but some policies will allow you to defer their cover over this period so that you’re not over-insuring.
Make sure you read the terms and conditions of both policies carefully before you buy.
Where can you buy Gap insurance
Many are introduced to Gap insurance in a car dealership - as it's usually offered as part of the bundle of ‘extras’ sales staff will try to get you to buy.
While Gap insurance is a worthwhile product, your dealership might not be the best place to buy it. It can often be found far more cheaply online - sold directly by insurers and brokers, or via comparison sites.
Concerned that dealerships were selling overpriced Gap insurance to customers distracted by negotiations around buying the car, the Financial Conduct Authority (FCA) set out rules in 2015.
Dealerships selling Gap insurance must tell you the following before you buy a policy:
- The total premium for the Gap insurance
- The length of the policy
- The features, benefit, unusual exclusions and limitations of the product
- That the product can be bought elsewhere from standalone providers
- Whether Gap insurance is an optional or compulsory add-on to the sale of the vehicle
In addition, dealerships can no longer sell you Gap insurance on the same day they sell you a car. There must be at least a two-day break unless you decide to waive the waiting period.
If you do wait two days or longer, the provider should go over the detail of the policy again.
The decision to waive the waiting period must be initiated by you, and can’t be suggested by the dealership.
Whatever policy you choose, grasp the key features before you buy. The following are just some of the important elements you should look out for:
- Length of the policy
- Any significant exclusions
- The value of your vehicle
- How to claim on your policy
- How to cancel your policy if you no longer need it
In our review pages, we show you some key details and illustrative costs from a selection of Gap insurance providers.
Which kind of Gap insurance is best for you?
There are many types of Gap insurance product, with different providers offering their own unique spin - or combinations of cover. While some are more basic than others, they’re suitable for different purposes - so which one is best for you depends on your purposes.
Below, we've described how some of the more common types work:
Finance Gap insurance
One of the most basic products on the market (and quite often a feature of other types of Gap cover), this helps you pay off any outstanding loan payments on your car if it’s written off. However, this usually won’t include payments for negative equity. See below.
Negative equity Gap insurance
If your finance settlement (the amount you’ve borrowed) is higher than the cost of your car, the extra sum is referred to as ‘negative equity’. This usually comes about if you’d part-exchanged a previous car prior to paying off its finance, transferring the remaining debt from that loan to your current car. A Finance Gap insurance payout won’t cover this older debt. Negative equity Gap Insurance will.
Return to invoice Gap Insurance
Return to invoice Gap insurance tops up the claims payout from your car insurer to the amount you bought the vehicle for.
Find out more in our Return to invoice Gap review
Vehicle replacement Gap insurance
Rather than helping you reach the amount you paid for the car, vehicle replacement cover bridges the distance between your car insurance payout and the cost of replacing your vehicle with a new one.
Find out more in our Vehicle replacement Gap review
Return to value Gap insurance
Return to value Gap is similar to return to invoice Gap insurance, but instead of helping you get exactly what you paid for the car, it pays the difference between your car insurance settlement and the value of the vehicle when it was first purchased.
This could prove useful if you bought the car second hand, or you have had the vehicle for a long time.
Lease gap insurance
If you leased your car rather than buying it outright, lease Gap insurance helps you pay the rest of your contract and any fees that may apply for cancelling your lending agreement early.
How to claim on your Gap insurance
Once your car insurer has offered your settlement, you can make your Gap insurance claim. But even prior to this point, it's worth checking your Gap insurance t&cs to check whether there are any time limits in submitting your Gap claim, what your excess is and what information you'll need to have ready for them.
Call your Gap provider
It's best to speak to your Gap insurer before you accept any settlement from your car insurance provider. Many Gap providers insist you speak to them before agreeing a claim.
If you have finance as part of your Gap insurance policy, it's worth discussing how any outstanding loans are settled, and if this will automatically be paid on your behalf.
Unsatisfied with the response? Complain
if your Gap insurer doesn't handle your case in a fair and timely manner, don't be afraid to complain. Details of how to do this should be listed on your policy document.
If you've exhausted the insurance company's complaints procedure and your claim has not been settled, contact the Financial Ombudsman Service (FOS).
You usually have six months from the time you reach deadlock with the insurer in which to make a complaint.