Gap Insurance: Uk Car Protection

GAP insurance, or Guaranteed Asset Protection insurance, is a financial product that covers the difference between the amount your insurer pays out if your car is stolen or written off, and the price you paid for it. This type of insurance is designed to work alongside your standard car insurance and is particularly useful if you want a brand-new replacement car or if you owe money to a car finance company. GAP insurance is not essential, as your car insurer should already pay out for a replacement car of a similar age and condition. However, it can provide additional financial peace of mind if your vehicle is written off.

What does GAP stand for?

GAP insurance is an acronym for Guaranteed Asset Protection. This means that, in the event of a 'total loss' claim, GAP insurance covers the difference (or the gap) between the amount your insurance provider pays out and the amount you'd need to pay to buy a new or equivalent model. This is because insurance providers will usually pay the current market value of your car in the event of a 'total loss' claim, which can leave a lot of motorists out of pocket, especially as new cars typically drop in value between 15% and 35% in the first year.

GAP insurance is designed to work alongside your standard car insurance. It is a standalone policy that covers 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 car. It is a financial product often sold when you buy or lease a car. It is not a replacement for your car insurance and you must have comprehensive car insurance to make a claim on your GAP cover.

When is GAP insurance needed?

GAP insurance is needed when you want to ensure you don't lose out financially if your car is written off or stolen. GAP insurance covers the difference between the compensation you receive after a total loss of your vehicle and the amount you still owe on your car loan.

GAP insurance is needed when:

• You want a brand new replacement car: If your car is written off or stolen, your insurance company will pay out the car's current value, which is likely to be less than what you paid for it, especially if it's brand new. GAP insurance will cover the difference, allowing you to buy a brand new replacement car.
• You owe money to a car finance company: If you've taken out a loan to buy a car and it's written off or stolen, your insurance company's payout may not cover the remaining loan amount. GAP insurance will cover this difference, so you don't have to pay back the loan for a car you no longer have.
• You have a long finance period: If you have a long-term loan for your car, the amount you owe may exceed the car's value. In this case, GAP insurance can protect you from having to pay the difference out of pocket.
• You made a small down payment: If you didn't make a substantial down payment on your car, the amount you owe may quickly exceed the car's value. GAP insurance can help cover this gap.
• You purchased a vehicle that depreciates quickly: Some cars depreciate faster than others. If your car loses value rapidly, GAP insurance can help protect you from financial loss if it's written off or stolen.
• You rolled over negative equity from an old car loan: If you have negative equity from a previous car loan, GAP insurance can help cover this if your new car is written off or stolen.

In summary, GAP insurance is needed when you want protection against financial loss in the event your car is written off or stolen, and you owe more on your car loan than its current value. It ensures you have the funds to clear any outstanding finance and purchase a replacement vehicle.

What does GAP insurance cover?

GAP insurance, or Guaranteed Asset Protection insurance, is an optional add-on product that covers the difference between the amount you owe on your auto loan and the amount your insurance company pays out if your car is stolen or written off. This type of insurance is designed to protect you from financial loss in the event that your car is stolen or deemed a total loss after an accident.

In the event that your car is stolen or written off, standard auto insurance will typically only pay out the current market value of your car, leaving you to pay off any remaining loan balance. GAP insurance covers this difference, ensuring that you are not left out of pocket. For example, if you owe £24,000 on a car loan but your insurance company only pays out £20,000, GAP insurance will cover the remaining £4,000.

There are several different types of GAP insurance policies available, including:

• Return to invoice GAP insurance: Tops up a 'total loss' payout to the amount you bought the vehicle for.
• Return to value GAP insurance: Pays the difference between a standard 'total loss' payment and the value of the car when it was first purchased.
• Vehicle replacement GAP insurance: Pays the difference between a standard 'total loss' payment and the cost of a new car.
• Finance GAP insurance: Covers outstanding loan payments on a car but typically does not include negative equity.
• Negative equity GAP insurance: Covers additional costs on a finance deal when you borrow more than the cost of your car.
• Lease GAP insurance: Pays the remaining payments on a lease deal and any early termination fees.

It is important to note that GAP insurance does not cover costs related to vehicle repairs, personal injuries, or other accident-related expenses. It also does not replace your standard car insurance policy, which is required to make a claim on your GAP cover.

What are the benefits of GAP insurance?

GAP insurance, or Guaranteed Asset Protection, is designed to cover the difference between the amount your insurer pays out if your car is stolen or written off, and the price you paid for it. It is not a legal requirement, but it can be very useful in certain situations. Here are some of the key benefits:

Protects you from financial loss

If your car is stolen or written off, your standard car insurance will only pay out the current market value of the vehicle, which may be significantly less than what you originally paid, especially if it is a new car. GAP insurance covers this difference, ensuring you are not left out of pocket.

Offers peace of mind

If you have a large loan or finance agreement for your vehicle, GAP insurance can provide peace of mind. In the event that your car is written off, you won't be left with a large debt and ongoing monthly repayments for a car you no longer own.

Covers depreciation

Cars, especially new ones, depreciate very quickly. GAP insurance protects you from this loss of value, ensuring you get back the original amount you paid for the car. This is particularly beneficial if you have an expensive model that depreciates quickly.

Useful for leased vehicles

If you have a long-term lease or rental agreement for your vehicle, GAP insurance can be beneficial. In the event of a write-off, it can protect you from owing thousands of pounds to the lease company.

Provides a brand-new replacement

If your car is only a couple of years old, GAP insurance can ensure you get a brand-new replacement in the event of a total loss. Standard car insurance policies often only provide a like-for-like replacement, which may be an older model.

What does GAP insurance not cover?

GAP insurance, or Guaranteed Asset Protection, is an optional financial product that covers the difference between the amount your insurer pays out if your car is stolen or written off, and the amount you paid for it or still owe on it. It is worth noting that GAP insurance is not a replacement for standard car insurance and cannot be purchased without it.

There are several types of GAP insurance, including:

• Return to invoice GAP insurance
• Return to value GAP insurance
• Vehicle replacement GAP insurance
• Finance GAP insurance
• Negative equity GAP insurance
• Lease GAP insurance

Despite the financial protection that GAP insurance offers, there are certain situations in which it will not provide cover. Here are some key examples of what GAP insurance does not cover:

• Your car insurance deductible – GAP insurance purchased through a car insurance company usually doesn't cover your collision or comprehensive deductible amount. If you have a gap of £3,000 after your collision insurance pays out and a £500 collision deductible, GAP insurance will only pay £2,500, leaving you to cover the remaining £500.
• Overdue payments and late fees on your car loan or lease – GAP insurance will not cover any missed payments or late fees on your car loan or lease.
• Extended warranties – GAP insurance does not cover extended warranties on your vehicle.
• Carry-over balances from previous loans or leases – GAP insurance will not cover any outstanding balances from previous loans or leases.
• Lease penalties for high mileage or excessive use – GAP insurance will not cover any penalties incurred for excessive mileage or use of a leased vehicle.
• Charges for credit insurance connected to the loan – GAP insurance does not cover charges for credit insurance related to your car loan.
• A down payment for a new car – GAP insurance will not provide cover for a down payment on a new car.
• Modifications to your car – GAP insurance will not cover any modifications made to your car, such as bigger exhausts, sporty spoilers, or alloy wheels.
• Vehicles above a certain age or mileage – GAP insurance typically has age and mileage restrictions. For example, some policies may not cover vehicles that have already driven more than 100,000 miles or are over a certain age.
• Vehicles used for hire or taxi services – GAP insurance usually excludes vehicles used for commercial purposes, such as hire or taxi services.
• Vehicles above a certain value – Some GAP insurance policies may not cover vehicles worth more than a specified amount, such as £75,000.

Frequently asked questions