Despite your every effort to care for your brand new car, its value will begin to depreciate the moment you drive away from the forecourt. This is without factoring in the potential financial implications of your car being declared a total loss following an accident, theft, fire or flood damage. This is where guaranteed asset protection (GAP) insurance can help.
If the worst was to happen to your new car and it is written off, your conventional motor insurer will only provide a settlement figure for its depreciated value. This means you wouldn’t get a pay out equal to what you originally paid for it or enough to clear your outstanding payments on a lease agreement. GAP insurance is designed to protect you against this kind of financial shortfall.
In this guide, we will explain the types of GAP insurance available for new cars and discuss their benefits and limitations to help you understand whether GAP insurance would be worth it for your new car.
If your car is written off as a total loss, Back to Invoice Plus GAP insurance (also known as Return to Invoice) will pay the difference between your market value settlement from your motor insurer and the vehicle’s original purchase price or the outstanding finance, depending on which is the highest figure at the time of your claim.
This insurance is for vehicles of less than 10 years old, bought outright or on finance, up to a value of £125,000.
Vehicle Replacement Plus GAP insurance covers the difference between the insurance settlement from your motor insurance provider and the replacement cost of an equivalent vehicle or the outstanding rental on your finance agreement, whichever is greater at the time of your claim. Vehicle Replacement insurance protects you from potential manufacturer price increases or discounts that are no longer valid.
This insurance is also for vehicles bought outright or on finance up to a value of £125,000, but vehicles must be less than seven years old, with fewer than 80,000 miles and collected from a VAT-registered dealer within the last 90 days.
If your lease or contract hire vehicle is declared a total loss, Contract Hire Plus GAP insurance will settle up to 100% of your outstanding rental payments and any shortfall in the market value settlement from your motor insurance provider.
You can also include an optional up-front rental cover on this policy for an additional premium. This protects the initial deposit paid at the start of your lease agreement, up to a value of £3,000.
On average, a brand new car will depreciate 15-35% in value within the first year of ownership. The biggest advantage of GAP insurance coverage for new car owners is that it covers the deficit in the car’s depreciating market value that isn’t accounted for by conventional car insurance. Compare this to other basic motor insurance policies which will only pay the vehicle’s market value in the event of total loss, even with your fully comprehensive cover.
GAP insurance is an affordable way to account for any possible mishaps when your car’s depreciation rate is at its highest within the first few years of ownership, offering security in the event of financial risks incurred from unforeseen circumstances.
The flexibility of GAP insurance allows for different methods of purchasing a new car and enables you to tailor your policy according to the coverage that suits you. Overall, GAP insurance offers a financial safety net and peace of mind so you can enjoy your new car without worrying about potential losses in the future.
There are some limitations of GAP insurance, mainly that it cannot cover absolutely everything. Vehicles that are excluded from our GAP insurance offering include buses, motorcycles, taxis and minicabs, driving tuition vehicles, couriers and delivery vehicles, and any left-hand drive vehicle. See our exclusions list for more details.
In the event of a claim, GAP insurance won’t cover you for any extras or accessories that are not on the manufacturer’s price list that you have fitted to your car after you bought it. Likewise, it can’t cover any deductions made by your main insurance provider to account for unpaid premiums, for example.
You should also bear in mind that you can only take out a GAP insurance policy if you have fully comprehensive coverage with your main car insurance provider. GAP insurance works in conjunction with your comprehensive motor insurance policy, so if this does not pay for a claim, then your GAP insurance won’t either.
GAP insurance isn’t a legal requirement, but it is highly recommended for new cars because of the rapid rate they depreciate in value within the first few years of ownership. The more your car has depreciated, the more a policy like Back to Invoice Plus will be worthwhile. With ALA, you can also get Scratch & Dent Insurance for an additional premium to cover the SMART repair of minor cosmetic damage to your new car’s bodywork.
Similarly, if you’re in an accident and want to replace your car with a vehicle of the same make and model but are worried about manufacturer price increases, a policy like Vehicle Replacement Plus would be worth it because it would enable you to purchase the new car for what you originally paid, not the raised price.
However, you should always still check the coverage provided on your standard car insurance policy. Many insurance providers will provide you with a new car if yours is written off or stolen within the first 12 months of ownership, in which case GAP insurance may not be necessary.
Whether you need GAP insurance is a matter of personal circumstance. Like any type of insurance, you should weigh up the benefits and limitations against what you could afford if something were to happen to your car. A brand new car is a big investment in itself, so you may not have the funds available to purchase a replacement should yours be declared a total loss by your insurer. In this case, you should certainly consider getting GAP insurance.
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