What is GAP insurance? 

• What is GAP insurance and what does it cover?
• Find out whether you need GAP insurance on your new car
• Making sure you buy the right type

Anyone buying a car recently will probably have heard the term GAP insurance. If you’re buying a car from a dealer, they’ll have made out it’s as important as regular car cover. The question is, are they right? Read on to find out.

What is GAP insurance?

GAP stands for Guaranteed Asset Protection. The idea is that it covers your investment over and above regular motor insurance.

But doesn’t car insurance cover your car?

The answer is both yes and no. When you take out car insurance it covers your car - up to a certain point… But because of how quickly cars lose value, the pay-out you get from an insurer if it writes your car off is unlikely to buy a similar age or type of car to the one you want to replace.

That’s where GAP insurance comes in. Buy the right kind of policy and it will cover the difference between what the motor insurer pays you and what it will cost to buy an equivalent replacement car.

Do you need GAP insurance on a new car?

If you’ve bought a brand-new car, your motor insurance probably covers you for new-car replacement within the first 12 months of the car’s life. If that’s the case, no need to buy GAP insurance.

Can I buy GAP insurance on a used car?

You can buy GAP insurance on any age of car. It probably makes the most sense if you’re buying the car on finance and you have put down a small deposit, or are due to pay a large final or balloon payment to own the car.

If you own your car through a contract hire deal or lease and it’s written off, you may owe the lease company more than your insurer pays out. If you are in that ‘negative equity’ situation, GAP insurance could prevent you being hit with the double whammy of owing the finance company money and being car-less.

Make sure you buy the right kind of GAP

There are various kinds of GAP cover. And as with a lot of insurance, GAP providers tend to give with the large print in their advertising material and then take away with the small. So it’s worth checking the kind of cover you’re getting.

At the very least, you want to buy what’s known as Return to Invoice. This tops up what your car insurer will pay out so that you end up with exactly what you paid for your car. But you could go for Brand New or Vehicle Replacement GAP. This is designed to compensate for the rising cost of cars or perhaps a one-time only discount. It means you’ll get back what you paid for your car plus a bit more so you can buy a new version of the exact make, model and specification of car that was written off.

Watch out for these…

You probably don’t want GAP cover billed as Finance GAP. This will pay out anything that you might owe your finance company. It won’t buy you a new car. Policies that claim they’ll pay the Market Value or Insured Value of your car aren’t really worth it either. These will still leave you with a shortfall after the motor insurer has paid out.

If you haven’t got the right sort of GAP insurance, you might only find out if your car is stolen. Some insurers insert a clause that demands a certain amount of time before they’ll pay GAP insurance. Presumably they’re hoping the car will be found but it’ll leave you in an annoying limbo.

Other GAP insurers require what’s called ‘pre-approval’ before paying out. This is where the main insurer offers you a price for your car and you have to agree that with the GAP provider before it coughs up. It can leave you haggling with the main insurer before the GAP insurance pays. Or worse, if you don’t get approval and simply accept the main insurer’s offer, the GAP insurer may not pay out at all.

Do I have to get GAP insurance from the dealer?

The first person you’ll probably hear about GAP insurance from is your dealer. However, multiple organisations provide it. You can buy it from banks, finance companies, insurance companies and GAP insurance specialists. As with any other insurance, make sure you shop around before signing up for anything to get the best possible price and sort of cover.

Is GAP insurance worth it?

That’s the few hundred-pound question. It really does depend on the car and how much money you’ve invested in it.

Equally, if you’ve spent a grand on a 15-year old motor, GAP probably isn’t worth the cost for the protection it’ll give you. However, if you’ve bought a nearly-new car on finance you should look into it.

Like all insurance, it’s a bit of a gamble. You may be spending money that you never get back. In which case if you have savings and can make up any shortfall out of those, you could provide your own GAP insurance.

But if you don’t have any money under the mattress, you may be concerned that if your car is written off, you won’t be able to replace it like-for-like. If that’s you, the money you spend on GAP cover will at the very least purchase peace of mind.