Jeffrey Wade
Guaranteed Asset Protection (GAP) insurance is an optional financial product that covers the difference between the current value of a car (the amount your car insurer will usually pay out) and the amount you initially paid for it in the event of theft or a write-off. While GAP insurance is not essential, it can be useful for those who want a brand-new car to replace their current one if it is written off or stolen. However, it is important to note that GAP insurance claims ratios are exceptionally low, averaging around 10%, and many people pay too much for it by buying it from dealerships rather than directly from insurance companies.
| Characteristics | Values |
|---|---|
| What is GAP insurance? | Guaranteed Asset Protection (GAP) insurance covers the difference between the amount you get from your insurer if your car is written off and what you paid when you bought it. |
| Do you need GAP insurance? | GAP insurance is not essential. Your car insurance should pay out for a replacement car of the same age and condition as yours was when it was written off or stolen. |
| When is GAP insurance worth it? | GAP insurance is worth it if you want a brand-new car to replace your current one if it is written off. |
| When is GAP insurance not worth it? | GAP insurance is not worth it if you are happy to buy a second-hand replacement or if you have enough money to make up the shortfall yourself. |
| How much does GAP insurance cost? | Policies are typically priced between £100 and £300 for three years of cover. |
| Where to buy GAP insurance? | The marketplace has changed, and the quickest and usually cheapest way to get GAP insurance is via comparison sites. |
| How to decide if you need GAP insurance? | If you have a finance agreement, evaluate your finances and decide on the best course of action that helps you accomplish your financial goals. |
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What You'll Learn
- GAP insurance covers the difference between the car's value and the insurance payout
- It's not essential, but can be useful if you want a brand new replacement
- It's not designed for older or inexpensive cars
- You can buy it for new or second-hand cars up to 10 years old
- You may be overpaying if you buy from a dealer
GAP insurance covers the difference between the car's value and the insurance payout
GAP insurance, or Guaranteed Asset Protection insurance, is an optional financial product that covers the difference between the current value of the car (the amount your car insurer will usually pay out) and the amount you initially paid for the car. This type of insurance is typically purchased for brand new vehicles, as they depreciate in value much faster than used vehicles. For example, a brand new car may lose up to 60% of its value after three years, whereas a three-year-old car may only depreciate in value by 30% over the same period.
GAP insurance is particularly relevant if you are still paying off your car loan or lease. In the event of a total loss, GAP insurance can protect you from negative equity by covering the difference between the insurance payout and the remaining loan or lease amount. This is especially useful if you have a high-interest loan or a long-term financing agreement, as the insurance payout may not cover your outstanding loan without GAP insurance.
However, GAP insurance may not be necessary if you made a substantial down payment on your car or if you are paying off your loan within a short period. Additionally, some car insurance policies offer replacement cover for the first year, eliminating the need for GAP insurance during that time.
Ultimately, the decision to purchase GAP insurance depends on your financial situation and the specifics of your car loan or lease agreement. It is recommended to compare prices and consider the potential financial impact of a total loss before deciding whether GAP insurance is worth it for your vehicle.
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It's not essential, but can be useful if you want a brand new replacement
GAP insurance is not an essential product, but it can be useful if you want a brand new replacement car. GAP insurance is optional, and you should weigh up whether the cost is worth it for you. Your car insurance should cover a replacement car of the same age and condition as yours, so you won't be worse off without GAP insurance. However, if you want a brand new car to replace your current one if it is written off, then GAP insurance can be useful.
This type of insurance covers the difference between the value of your car when you bought it and the amount your insurance company would give you if it were written off or stolen. For example, if you pay £30,000 for a new vehicle and 15 months later it's written off, your car insurer will pay out its value at the time, which may be around £18,000. With GAP insurance, you could claim the outstanding amount to cover the loss in value.
It's important to note that GAP insurance is not typically designed for older or inexpensive vehicles, as their rate of depreciation is relatively low. It is also more expensive for brand new vehicles, as it often pays out more than the difference between the payout and the purchase price. GAP insurance claims ratios are exceptionally low, averaging around 10%, so it's important to shop around. You may also not need GAP insurance in the first year after buying a new car, as some car insurance policies will provide a replacement if the car is written off in that time.
In summary, GAP insurance can be useful if you want a brand new replacement car, but it is not essential. You should consider the age and value of your car, the potential cost of GAP insurance, and whether you need it in the first year of ownership.
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It's not designed for older or inexpensive cars
GAP insurance is not typically designed to cover older or relatively inexpensive vehicles. This is because their rate of depreciation is relatively low. You risk being in negative equity, meaning you would owe more than the car is worth.
For example, if you write off a car you bought for £16,000, and the value has depreciated by 60%, you will only receive £6,400 from your car insurer. In this case, you could claim on your GAP insurance policy for the outstanding £9,600 to cover the loss in value.
GAP insurance is only worth buying if you want a brand-new car to replace your current one if it is written off. If you are happy to buy a second-hand replacement, you can use your insurance payout. Used vehicles depreciate in value much slower than brand new ones. A three-year-old car might only depreciate in value by 30% in the first three years, compared to up to 70% for a brand new vehicle.
If you have enough money to make up the shortfall yourself, paying for a GAP insurance policy may not be worth it. If you can afford to cover the difference between the current value of the car and its original value, you probably don't need GAP insurance.
It is also important to note that GAP insurance claims ratios are exceptionally low, averaging around 10%. This means that the likelihood of having to claim on it is very small.
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You can buy it for new or second-hand cars up to 10 years old
GAP insurance is an optional financial product that covers the difference between the value of your car when you bought it and what an insurance company would give you in the event of theft or a write-off. This means that if you want a brand new car to replace your current one if it is written off, GAP insurance will cover the cost. If you are happy to buy a second-hand replacement, you can use your insurance payout.
You can buy GAP insurance for new or second-hand cars up to 10 years old. It is a common misconception that it is only used for financed cars. It is worth noting that GAP insurance is not typically designed to cover older or relatively inexpensive vehicles. This is because their rate of depreciation is relatively low.
If you are considering GAP insurance, it is important to shop around as claims ratios are exceptionally low, averaging around 10%. It is also worth noting that GAP insurance is often sold at inflated prices by car dealers. In fact, the Financial Conduct Authority (FCA) has found that more than half of GAP insurance fees go to the dealership as commission. As a result, it may be cheaper to buy vehicle replacement cover from insurers than it is to buy RTI cover from dealers.
If you have enough money to make up the shortfall yourself, paying for a GAP insurance policy may not be worth it. Additionally, some car insurance policies offer replacement cover if your car is written off or stolen in the first year, meaning you would not need GAP insurance in the first year.
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You may be overpaying if you buy from a dealer
GAP insurance is a financial product sold when you buy a brand-new car. It covers the difference between the current value of the car (the amount your car insurer will pay out) and the amount you paid for the car or any outstanding payments. It is not an essential product, and whether you need it depends on your circumstances.
According to the Financial Conduct Authority (FCA), which regulates insurance providers, more than half of GAP insurance fees go to the dealership as commission. In some cases, insurers have paid out up to 70% of the value of premiums in commission to car dealerships. As a result, GAP insurance can cost up to 61% more from a franchised dealer than from an insurance company.
In 2023, the FCA warned insurance companies selling GAP insurance that they must provide good value to their customers or it would take further action. As a result, some insurers have already withdrawn the product from sale.
Before buying GAP insurance from a dealer, it is worth checking the prices offered by insurance companies. Comparison sites are the quickest and usually the cheapest way to do this.
It is also worth noting that GAP insurance claims ratios are exceptionally low, averaging around 10%. This means that the likelihood of claiming on GAP insurance is small.
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Frequently asked questions
Guaranteed Asset Protection (GAP) insurance covers the difference between the amount you get from your insurer if your car is written off and what you paid when you bought it.
GAP insurance is not essential. If you can afford to cover the difference between the current value of the car and its original value, then paying for a GAP insurance policy may not be worth it. However, if you want a brand-new car to replace your current one if it is written off, then GAP insurance may be worth it.
GAP insurance policies are typically priced between £100 and £300 for three years of cover.
You can buy GAP insurance from a dealer or an insurance company. It is often cheaper to buy it from an insurance company.
