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If you were to make a car insurance claim and your car is written off, GAP insurance may come in to save the day. Guaranteed Asset Protection or GAP insurance is an optional policy which can be taken out when buying a new car. This insurance covers the ‘gap’ between the car’s value and the finance amount owed, should your vehicle be written off. If you’re wondering if GAP insurance is worth it, our guide below looks at how it works and if you would benefit from a GAP insurance policy. 

man with GAP insurance policy

What is GAP insurance? 

GAP insurance is a policy which protects drivers if they need to make a ‘total-loss’ claim in the event of a road accident or their car being written off. Bad driving habits can increase the risk of needing to claim. Usually, drivers can lose out when they make a claim and the whole car needs to be replaced. This is due to depreciation rates and new cars can lose as much as 50% of their value in the first 3 years of ownership! Guaranteed Asset Protection (GAP) Insurance helps to reduce this loss. It covers the difference between the amount the insurance provider pays out and the amount you need to buy a new car or equivalent model.

Types of GAP insurance to choose from: 

When it comes to getting GAP insurance, there are several different policies you can choose from.

  • Return to invoice – this policy will cover the amount you bought a vehicle for.
  • Return to value – You will get the difference between a ‘total loss’ payment and the value of the car when it was first purchased.
  • Vehicle replacement – pays the difference between the ‘total loss’ payment and the value of buying a new car and replacing the vehicle.
  • Finance – This policy will cover any outstanding finance payments on a car.
  • Negative equity – covers the cost of negative equity if your finance is more than the value of your car.
  • Lease GAP insurance – pays the money on a lease deal and any extra fees for ending your agreement early.

When is GAP insurance a good idea? 

Depending on your situation, you may be looking to take out a GAP insurance policy. If you’re not sure if it’s right for you, you could consider the scenarios below in which a GAP insurance deal would be beneficial. 

GAP insurance could be beneficial if you:

  • Owe money to a finance company
  • Have a car which depreciates quickly.
  • Want to buy a brand new replacement car. 
  • Have a car which costs less than the value of the finance or lease in place. 
money for GAP insurance payout

Do you need GAP insurance? 

No, you don’t need it. GAP insurance is an optional policy you can take out. You won’t need GAP insurance if you…

  • Aren’t fussed about having a brand-new replacement car. 
  • Have a car that is less than one year old and you already have a full comprehensive insurance policy in place. 
  • You have a second-hand car. 

How much does GAP insurance cost UK?

The cost of GAP insurance can be determined by the type of car you have but also by where you buy your policy from. Usually, GAP insurance quotes can range from £100 to £300 for 3 years. You can obtain GAP insurance from the Federal when buying a brand-new car but it could end up costing you more. Buying your GAP insurance from a franchised dealer can cost you around 60% more than it would if you used a GAP insurance provider. Compare GAP insurance quotes online for free

How does car finance and GAP insurance work? 

New cars bought on finance usually benefit the most from GAP insurance policies. This is because most brand-new cars can depreciate as much as 20% in value during the first year of ownership and a massive 50% within the first three years. Due to this, you may find yourself in a position of owning more than your car is worth in finance if your car were to be written off. GAP insurance literally helps to bridge the gap between what you owe and the value of your car. If your car was to be written off, your GAP insurance policy would allow you to get a ‘like-for-like’ vehicle replacement. 

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