GAP Insurance

GAP stands for Guaranteed Asset Protection. There are several specific types of GAP insurance but the overall purpose of this type of cover is to protect you financially in the event of a total loss claim.

Whilst a large number of policies are purchased for brand new cars, GAP Insurance can be taken out on used models if desired. Vehicles are an expensive and often long-term investment, and driving – by its very nature – can be inherently dangerous, so unfortunately there is no way of guaranteeing the condition and health of your car.

Depreciation within the car market is very high. Up to 77% of the value of a brand-new vehicle can vanish over a 3-year period, while some used cars can depreciate by as much as 20% within the first six months. Add this to the fact that vehicle theft has accounted for around one in seven crimes, there has been a 7% increase in vehicle theft in 2018, and a 30% increase since 2015, not to mention the high rate at which vehicles are written off, GAP Insurance attempts to provide some much needed indemnity should anything untoward occur to your vehicle.

Your need for GAP Insurance entirely depends on the circumstances surrounding your purchase, and there are a number of factors to consider before taking out a policy.

As a rule of thumb, the newer the vehicle you’re buying, the more you will benefit from having GAP Insurance coverage in the event of any incidents. If you’re buying an older vehicle for cash, the benefits of having a GAP policy are much lower; older cars still depreciate but at a much slower rate. If you’re signing long-term finance deals on brand new vehicles, you can risk having to pay outstanding finance out of your own pocket if your insurer does not pay enough to cover the balance.

You may also wish to consult your comprehensive car insurance, as some insurers will replace a car bought from brand new if it is written off within its first year. If you believe you may have this cover, check the terms and conditions thoroughly to ensure there are no exceptions or exclusions to this cover. If you’re happy that the cover offered by your insurer is sufficient, GAP insurance can be purchased before the end of the first year to ensure you’re covered for the rest of the time you own the car.

Dependent on the value of the vehicle and the term length of your finance agreement, policies range from around £100-£300 for multi-year coverage. ALA offer an online quoting tool that will clearly illustrate how much you’re being covered for and what the cost of that GAP Insurance policy would be.

Considering the price paid to get the car on the road and how long you anticipate owning the vehicle for, the quotation tool accurately displays how much of the vehicle’s worth would be covered year-on-year by your comprehensive car cover. It also tells you what the potential shortfall would be if you didn’t have GAP Insurance in place.

There are strict rules and regulations that exist around the sale of GAP Insurance, so it is worth ensuring that your broker is fully authorised and regulated by the Financial Conduct Authority (FCA) before proceeding. Whilst most companies will have internal complaints procedures which you will have to work through first, if you are in any doubt that you haven’t been dealt with directly in line with the FCA’s rules, you can complain directly to the Financial Ombudsman. You can also take this step if your GAP Insurance claim is rejected unexpectedly.

Like all forms of insurance, there is a variety of options available, so it’s well worth knowing which is best suited to your exact needs. Don’t rush into agreeing any cover without knowing exactly what you’re going to need. Whilst you can’t have more than one GAP policy on one vehicle, a number of suppliers provide “combined” cover which gives you better coverage and the security that you desire.

• Finance GAP Insurance: One of the simpler products available, this policy is often attached to other forms of coverage as part of a package. Designed to fulfil any outstanding finance repayments of a vehicle that’s been written off, it doesn’t tend to extend to payments concerning negative equity.
• Negative Equity GAP Insurance: A more comprehensive offer compared to the Finance Gap Insurance, this policy will concern those whose loan amount is higher than the cost of their car. Occurring when somebody has part-exchanged a vehicle before the finance has been paid off – transferring the remaining amount on to their new deal – this insurance will cover that historical debt.
• Return to Invoice GAP Insurance: Also known as Back to Invoice, this policy will bridge the gap between your car insurance pay out – which will fluctuate depending on the current value of the car at the time of the claim – and the amount you bought the vehicle for, which may prevent you from being left severely out of pocket. This can often be purchased combined with Finance GAP Insurance.
• Vehicle Replacement GAP Insurance: This policy aims to provide the difference between your car insurance policy pay out and the cost of replacing your vehicle with a new one (if it was brand new originally). A good purchase for those who have received discounts or contributions from the dealer when purchasing their car, and are concerned that they may not receive the same level of discount for the same car following a write off.
• Return to Value GAP Insurance: Not too dissimilar to the Invoice GAP Insurance option, and often called Agreed Value GAP Insurance, rather than provide the same sum that you originally paid for the vehicle, it pays out the difference between your car insurance settlement and the value of your vehicle at the time you purchased it. More of an option for those who’ve bought the car from a private seller rather than a garage or owned the vehicle for a long time.
• Lease GAP Insurance: This is also known as Contract Hire GAP Insurance. If you have leased your vehicle rather than buying it, this will be the most appropriate option for your financial situation. Due to lease agreements having so many pre-determined repayments – which are usually required to be paid if the agreement is terminated early – these can prove incredibly expensive if something was to happen to the vehicle. Lease GAP Insurance aims to cover all of that worry, providing enough to satisfy any remaining repayments. With modern leasing, there is often a large deposit required at the start of the contract, and you can choose to protect this as part of your GAP insurance.
• Agreed Value GAP Insurance: This GAP policy is suitable for used vehicles up to 10 years old, with less than 100,000 miles on the clock. It pays the difference between your comprehensive insurance pay out and the Glass’s Guide retail value at the time of the policy purchase. It’s also suitable for vehicles bought through a private seller, or you’ve owned it for more than 365 days.

While there are multiple policy types, there are still instances within all of those that GAP Insurance simply won’t cover. While these obviously differ between brokers and individual policies, there are some common exclusions that it’s worth being aware of.

• The most important exemption – and one that is always in place – counts against those who do not have a comprehensive car insurance policy in place. Before you even consider GAP Insurance as a possibility for your vehicle, you should ensure that you have the right level of car insurance in place first, otherwise you will be paying out for something which simply won’t come into effect when needed. If you have cover but it isn’t comprehensive, this should be upgraded and obtained prior to any additional policies being put in place.
• Claims where your car insurer fails to declare that your car is at a total loss are not applicable, so if it’s just heavy damage without being completely written off, cover will not be available.
• These policies are concerned with normal road legal driving – the things we all use our cars for day-to-day – so anyone who’s racing their car at a rally or as part of any other kind of competitive driving event won’t get covered in the event of a write-off.
  If you’ve modified your car in any way after you’ve bought it – the appearance, the interior, the technology – anything that may’ve added any value, this won’t be met. It is only the original value that is covered as part of your policy, so you should take this in to account when putting any additional funds in to your vehicle.

As previously discussed, GAP Insurance refers to the deficit between what you may have paid for your car on day one, and what your insurance policy will pay out in the event of a total loss incident occurring down the line.

You should be aware from the outset of what GAP Insurance does and doesn’t cover, as this can sometimes be a source of confusion. Things that aren’t covered include personal injury or death, damage to property, repairs to the vehicle, repossession, courtesy cars, any effect on valuation caused by an accident, a down payment for a new car, extended balances from old loan agreements on vehicles and extended warranties added to your car loan.

While there are some policies which will individually cover some of those occurrences, they won’t be covered as standard, and will likely be additional charges, or need to be packaged with other options.