What is GAP Insurance and Why You May Need It?

Whenever you purchase something of value you are always offered some way of protecting it and quite frequently, you are left unsure if it is either necessary, too expensive or what it even includes.

One such offering is GAP insurance. A form of insurance that could benefit you should your new car be subject to an insurance claim.

GAP insurance is used to cover the difference between the amount you paid for the car and the amount an insurance company will pay out should your vehicle be stolen or written off.

How it works and whether it is worth it will all be answered below.

What is GAP insurance?

GAP stands for guaranteed asset protection. This means that your asset – in this case your car – is protected by an insurance policy.

When you buy a car, it, unfortunately, loses significant value from the moment you start driving it. In the case of a brand-new car, that can be as high as 30%.

GAP insurance helps cover the costs should your car be a write-off or stolen. It in effect, covers the gap between what your car insurance company pay and the price you paid for the car.

Your car insurance company will only pay out based on the value of the vehicle at the moment it was stolen or written off. This means you can end up at a loss, very quickly without a GAP policy.

If you bought a car for £20,000 yesterday it could be worth £14,000 tomorrow and if you were unfortunate enough to write it off or have it stolen in that time, you are looking at a £6000 loss in just 72 hours.

GAP insurance protects you from this loss and sees you receive the full value back for the vehicle.  It isn’t quite as simple as this though as there are a few types of GAP insurance available.

What does GAP insurance cover?

There are a few types of GAP insurance policy and each one, whilst doing the same thing, covers you in different ways. As a result, it is worth looking at the available options before committing to a policy.

• Return to invoice GAP insurance pays you the difference between what your insurer will pay you and the price you paid for the car or the amount you owe to a car finance company.
• Vehicle replacement GAP insurance sees you receive the difference between what the insurer pays and what you would pay if the car was bought brand new today. In the case of used cars, it will be based on the cost you bought them for.
• Lease car GAP Insurance is, as the title suggests, only available for those that lease their car and have no option to buy it. The market value of the car will be covered by the insurer and the GAP policy covers the remaining lease payments.

You may also see return to value GAP insurance offered in some instances as well as negative equity GAP insurance.

What doesn’t GAP insurance cover?

No matter the insurance policy you take out, you are likely to find that various exclusions are in place meaning not everybody can get access to the cover. In the case of GAP insurance, there are a few to make note of.

If you only have third-party cover, you will not be able to get a GAP insurance policy, you must be fully covered with a fully comprehensive policy. Payouts will only be issued at the discretion of the insurance company. If they do not judge the vehicle to have been a write-off, or stolen, then they will state that the claim is invalid.

Should you have decided it worthwhile to upgrade your car with additional features, this may have driven the value up, however, GAP insurance will only cover the gap between what you originally paid and the current market value excluding any additional work.

Furthermore, many insurance companies will not offer GAP insurance if the vehicle is worth more than £75,000, has covered more than 100,0000 miles upon the start of the policy, is over a certain age or is used as a hire car or taxi.

Can I get GAP insurance on any car?

GAP insurance can be used on any car however it is more common with new car purchases. A used vehicle will depreciate slower than a new car and as a result, the gap between what an insurer will pay out and the value of the car is often small and makes the something not worth taking out.

How much will GAP insurance cost?

GAP insurance policies vary in cost depending on the type you choose and the vehicle you own but you can expect them to cost anything from £100 to £600. You can shop around online to compare prices and speak to car finance companies as well as banks and car dealerships to find a suitable policy. Just be aware that a dealership cannot sell you a GAP insurance policy at the same time you purchase the vehicle. There must be two clear days pass before they can offer you that service.

Is GAP insurance worth it?

For many people, it is a worthwhile policy but ultimately it all comes down to what you think may be of most benefit to you. If the monthly outgoing is one outgoing too many, then perhaps leave it. However, if you consider any of the following, then it could be worth getting a few quotes:

• If you want a brand new car to replace your stolen or written-off vehicle then a GAP policy would be worthwhile.
• If you purchase brand new cars on finance a GAP policy could be worthwhile as you will still owe money to them after your financed car has been written off or stolen. Your insurer will only pay what it is worth at the time so a GAP policy means you can cover what is left to pay.

It is not worth considering if you are happy to choose your next car from used car finance deals. Your insurance pay out will cover the cost of a like-for-like model so you won’t be at any great loss going without a GAP policy. You should also shelve the idea of a GAP policy if your vehicle is less than one year old, and you have fully comp cover. In many cases, new car replacements are offered on such plans during the first 1-2 years of coverage.

Finally, if you own a used car, as we mentioned earlier, a GAP insurance policy is not worth taking out. With depreciation being so much slower it just isn’t worth the expense.

Is it easy to claim GAP insurance?

Whilst it is simple to make the claim, much depends on the insurance company. They will need to declare your car a total loss. If they do, you can approach the provider of your GAP cover. With an offer from your car insurance provider and the GAP provider, you will be able to proceed and begin the process of receiving a payout and finding a new vehicle.

At Euphoria Finance we provide quick car finance to people on the lookout for new or used vehicles. With access to thousands of stunning cars, we can have you driving browsing today and driving tomorrow. It really is that simple. What’s more, we gladly help secure finance for those that are looking for new drivers car finance as well as those that have bad credit. Our poor credit car finance makes it possible for those previously told no to be told yes!