You might be wondering, why do I need GAP insurance and is GAP insurance worth it?
After all, if your vehicle is stolen or written-off, the costs will be covered by your insurance policy, right?
Insurance pay outs in the event of theft or a write-off
If you're unlucky enough to have your car stolen or endure the stress of having your vehicle written off, you don't need the worry of wrangling with your insurance provider over the pay-out amount.
The shortfall
The truth is most insurers only pay out the current market value of your vehicle, which can be significantly less than you paid for it.
Indeed, research shows that a car can lose up to 60% of its purchase price value in the first three years.
This shortfall can cause consternation, especially if you didn't go through the small print of your policy – and particularly if you bought your car new.
Should I get GAP insurance?
You can protect against such shortfalls in insurance pay-outs with Guaranteed Asset Protection – or GAP – insurance.
Car, motorcycle and van GAP insurance policies are available.
The benefit of GAP insurance
The money received from a GAP insurance policy will provide money in addition to that received from your insurance provider.
Depending on the type of GAP insurance that you have in place, these extra funds could help you in purchasing a replacement vehicle or in settling any outstanding finance.
Not all GAP products are made equal
GAP insurance products vary and are often sold when a car is purchased brand new.
How does gap insurance work in the UK and how much does gap insurance cover?
Some GAP insurance policies help cover the original price of a car, while others organise repayments on outstanding loans.
For the uninitiated, the world of GAP insurance can be confusing, with insurers offering a wide range of products, often with particular benefits and perks.
What type of Gap insurance do I need?
Some of the most common GAP insurance products are:
Finance Gap insurance
If you only know a little about GAP insurance, the chances are you know about finance GAP insurance.
Put simply, it helps you pay off any outstanding loans on your car should it be classed as a write-off.
Return to invoice Gap insurance
This product helps you get back what you paid for the car, making up any shortfall between your regular insurance and the vehicle’s purchase price.
Finance GAP cover is frequently bundled with this insurance type.
Vehicle replacement Gap insurance
This cover type makes up any shortfall between the pay-out sum and what it would cost to buy a brand new car.
It also often includes cover for any outstanding borrowing.
Return to value Gap insurance
Not unlike return to invoice Gap insurance, rather than ensuring you receive the amount you paid for the vehicle, this cover type bridges the difference between your pay-out and what the car cost when you first bought it.
This might be a more suitable solution if you've owned your car for a long time, or if you purchased a used car.
Lease Gap insurance
Wondering, do I need gap insurance on a lease?
This type of GAP insurance covers the cost of the remaining lease contract and any early cancellation fees.
Do I really need GAP insurance?
While it can be easy to regard the GAP insurance cost as yet another annual out-going, in some circumstances it can be very much worth the premium.
Does gap insurance cover at fault accidents?
Gap insurance can help you if your car has been written off by your insurer, including accidents whether it was or wasn’t your fault.
Negative equity
This undesirable situation can arise when you owe more than what your vehicle is worth.
Common causes of negative equity:
- You’re paying your debt off over a long period of time
- Your type of vehicle depreciates quickly
- You have high interest payments
- Your credit down payment was small
- You are required to pay a large ‘balloon payment’ at the end of the deal
Is gap insurance worth it?
In the event of theft or write-off, if you’d struggle to pay off your contract hire deal, or you would be unable to replace your vehicle, GAP insurance could be a prudent purchase.
Is GAP insurance worth it on a used car?
The used car market is growing, as is used car financing.
If you’re looking to buy a cheap used car, GAP insurance may not be that beneficial.
However, the average amount borrowed on a used car in 2021 was just under £17,000.
In such circumstances, GAP (guaranteed asset protection) insurance is well worth considering.
Due to the depreciation in the value of vehicles, even with a used car, you may find yourself in a situation where you may struggle to pay off the finance, or you would be unable to replace your vehicle without GAP insurance in place.
Situations where GAP insurance might not be worth it
Comprehensive insurance policies?
If your car is less than a year old and you have comprehensive car insurance, you will most likely be covered for full-value replacement.
Read the small print of your policy carefully to determine if there are any exclusions or limits.
For example, some products won’t cover you if your car is stolen, or if you are at fault in an accident.
Car finance deals?
You won’t need GAP cover if your finance deal covers any shortfall between the official current value of the car and what it cost you initially.
Once again, read the small print of your finance deal with care.
